No Tax on Overtime Deduction for 2025–2028

Beginning with the 2025 tax year, eligible taxpayers who earn overtime compensation may qualify for a new temporary federal tax deduction. The No Tax on Overtime deduction allows individuals to deduct the portion of overtime pay that exceeds their regular hourly rate. This deduction is available for tax years 2025 through 2028.

The maximum annual deduction is $12,500 for single filers and $25,000 for married couples filing jointly, subject to income limitations. It is important to note that overtime pay will not be broken out separately on W-2 forms. Employer-provided documentation will be required to properly support the deduction when filing a tax return.

Because this deduction is new and relies heavily on accurate wage documentation, understanding how overtime is earned, reported, and substantiated is critical. Working with a tax professional can help ensure the deduction is claimed correctly while remaining compliant with IRS requirements.

Government: IRS Newsroom, One Big Beautiful Bill Provisions https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions