The federal deduction for overtime, available for tax years 2025 through 2028, doesn’t cover all of your overtime pay. It covers only qualified overtime compensation: the extra “half” in time-and-a-half that the Fair Labor Standards Act (FLSA) requires. Getting that number right is the key to claiming the deduction correctly.
This guide shows how to work it out from your pay stubs, what your “regular rate” includes, and which overtime doesn’t count. For how this deduction fits with the others on Schedule 1-A, see Schedule 1-A explained.
The rule in one line
Qualified overtime = 0.5 × your regular rate × your FLSA overtime hours
FLSA overtime hours are the hours you work over 40 in a workweek as a non-exempt employee. The deduction is capped at $12,500 a year, or $25,000 on a joint return, and it phases out at higher incomes.
Step 1: Count your FLSA overtime hours
For each workweek, subtract 40 from the hours you actually worked. Only those hours count, even if your employer pays overtime on other hours.
- Paid time off isn’t hours worked. If you took 8 hours of vacation and worked 44 hours, you have 4 FLSA overtime hours.
- Weeks don’t combine. Working 30 hours one week and 50 the next gives you 10 overtime hours, not zero.
Step 2: Find your regular rate
Your regular rate isn’t always your base hourly wage. Under the FLSA, it generally includes:
- your hourly pay;
- shift differentials;
- non-discretionary bonuses, such as production, attendance or safety bonuses promised in advance;
- commissions.
It generally leaves out discretionary bonuses, gifts, expense reimbursements and certain premium pay for weekend or holiday work.
Example: you earn $25 an hour, work 50 hours in a week, and earn a $100 production bonus that week.
- Regular rate = ($25 × 50 + $100) ÷ 50 = $27.00
- Qualified overtime = 0.5 × $27 × 10 hours = $135
Based on your base rate alone, it would be $125. The bonus raises the qualified amount.
Step 3: Use the shortcut if you’re paid time-and-a-half
If your overtime is paid at exactly 1.5 times your regular rate, the qualified amount is simply one-third of your overtime pay, because the premium is 0.5 out of 1.5.
Example: Jordan earns $28 an hour and works 300 overtime hours in the year, paid at $42 an hour.
- Overtime pay: $42 × 300 = $12,600
- Qualified overtime: $12,600 ÷ 3 = $4,200, the same as $14 × 300 hours
- In the 22% federal bracket, a $4,200 deduction saves about $924 in federal income tax
If you’re paid double time for FLSA overtime hours, only the FLSA half-time premium qualifies. That’s one-quarter of your double-time pay for those hours.
What doesn’t count
- State daily overtime in weeks when you don’t work more than 40 hours, such as California’s daily overtime after 8 hours.
- Overtime under a union contract or company policy beyond what the FLSA requires, such as overtime after 8 hours a day or premium pay for weekends.
- The straight-time part of your overtime pay. The “1” in 1.5 is taxed normally.
- “Overtime” paid to exempt salaried employees who aren’t owed FLSA overtime.
Daily overtime example: a worker earning $30 an hour works four 10-hour days and a 6-hour Friday, 46 hours in all. State law requires 8 hours of daily overtime, so the employer pays $120 of overtime premium. For the deduction, only the 6 hours over 40 count: 0.5 × $30 × 6 = $90.
Where to find the numbers
- 2025 returns: many employers didn’t report qualified overtime separately on 2025 Forms W-2. The IRS let employees use reasonable methods, such as pay stubs or a statement from the employer. Add up the overtime premium from your pay stubs, or ask your payroll department for the year’s FLSA overtime premium.
- 2026 and later: look for the qualified overtime amount on your Form W-2 or in a separate statement from your employer.
Keep your pay stubs and any employer statement with your tax records, in case the IRS asks how you figured the deduction.
Who can claim it
- Non-exempt employees who were paid FLSA overtime.
- You need a valid Social Security number.
- Married couples must file jointly. You can’t claim it if you’re married filing separately.
- The deduction shrinks by $100 for every $1,000 of modified AGI above $150,000, or above $300,000 for joint filers.
Phase-out example: a single filer with $4,000 of qualified overtime and a modified AGI of $165,000 is $15,000 over the threshold. That cuts the deduction by $1,500, leaving $2,500.
What the deduction doesn’t do
- It doesn’t reduce Social Security and Medicare taxes, which are still withheld on all your overtime pay.
- It doesn’t lower your adjusted gross income, which matters for some other credits and limits.
- Your state may not follow it. Check your state’s income tax rules.
- You can claim it whether you take the standard deduction or itemize. It goes on Schedule 1-A.
Estimate your deduction and tax savings with the no tax on overtime calculator. If you also earn tips, pay interest on a car loan or are 65 or older, combine everything in the Schedule 1-A calculator.
Sources:
- IRS, One, Big, Beautiful Bill provisions
- U.S. Department of Labor, Fact Sheet #23: Overtime pay requirements of the FLSA
- Public Law 119-21 (H.R. 1)