Learn which overtime premium qualifies for the federal deduction, the $12,500 and $25,000 limits, MAGI phaseout, records, and California treatment.
The qualified overtime deduction is a temporary federal income-tax deduction for the portion of overtime compensation required under Section 7 of the Fair Labor Standards Act that exceeds the employee's regular rate. It applies for tax years 2025 through 2028 and is claimed on Schedule 1-A.
Qualified overtime compensation is generally overtime pay required by the FLSA that is above the worker's regular rate. Overtime paid only because of a state law, collective-bargaining agreement, employer policy, or contract may not qualify if it is not also required under FLSA Section 7.
Employees paid double time or under special FLSA rules may need a different calculation to isolate the FLSA-required premium. Public-sector fire, law-enforcement, compensatory-time, and other arrangements may require closer review.
The person who received the qualified overtime must have a Social Security number valid for employment. Married taxpayers must generally file jointly. Both standard-deduction and itemizing taxpayers may claim the deduction when eligible.
The maximum is $12,500 for filing statuses other than married filing jointly and $25,000 on a joint return. The joint amount is one combined return limit even if both spouses receive overtime.
After applying the maximum, the deduction is reduced when Schedule 1-A MAGI exceeds $150,000, or $300,000 for married filing jointly. The reduction is $100 for each $1,000, or fraction of $1,000, above the threshold.
Assume Alex and Jordan file jointly and have $8,000 of qualified FLSA overtime premiums. Their Schedule 1-A MAGI is $326,200. The $26,200 excess is treated as 27 increments, producing a $2,700 reduction. Their qualified overtime deduction is $5,300.
The calculation does not change how the overtime was reported as wages. It reduces taxable income after gross income and adjusted gross income are determined under the Schedule 1-A instructions.
For 2025, qualified overtime was not always separately reported on Forms W-2 or 1099 because transition relief applied. An employer may have provided the amount in Form W-2 box 14 or on a separate statement. If the statement shows total time-and-a-half pay for overtime hours, the IRS instructions describe methods that may be used to isolate the half-time premium.
Keep:
Do not enter the full amount from Form W-2 box 1 or Form 1099-NEC box 1 as qualified overtime.
Calculate the deduction in Part III of Schedule 1-A. The schedule combines it with any qualified tips, qualified passenger vehicle loan interest, and enhanced senior deduction. The total then reduces taxable income on the individual return.
The deduction does not reduce wages for Social Security and Medicare tax purposes and does not generally reduce self-employment tax. "No tax on overtime" is shorthand, not a statement that the entire overtime paycheck is excluded from every tax.
The federal deduction applies for 2025 through 2028 unless changed by Congress. California does not conform to the federal qualified overtime deduction. California also may have overtime requirements broader than federal law, but being overtime under California employment law does not make the pay deductible federally.
Taxpayers should preserve the federal calculation while ensuring the deduction is not incorrectly carried into California taxable income.
Heath Income Tax can review pay records, calculate the eligible FLSA premium and Schedule 1-A phaseout, and handle the California adjustment.
If I earned $9,000 for overtime hours, is $9,000 deductible?
Not necessarily. The deduction generally concerns only the FLSA-required amount above the regular rate, not every dollar earned during overtime hours.
Does double-time pay all qualify?
No. The calculation generally isolates the applicable FLSA premium, not every dollar above regular pay.
Can itemizers claim it?
Yes. Eligible taxpayers may use Schedule 1-A whether they itemize or take the standard deduction.
Does California overtime qualify for a California deduction?
California does not conform to the new federal deduction.
The definitions and examples on this page are for informational purposes only and do not constitute tax advice. Tax laws change frequently and individual circumstances vary. Consult a qualified tax professional before making decisions based on this content.
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