Published: 9/19/2025
With the passage of the One Big Beautiful Bill Act (OBBBA) of 2025, there’s the ability to receive a deduction for overtime pay from your federal tax obligation. Here’s a recap of the rule and several tax tips to ensure you receive the full benefit of the deduction.
The Tax Law Change
From 2025 through 2028, there is a new above-the-line tax deduction of up to $12,500 ($25,000 for joint filers) for qualified overtime compensation. Overtime is the half portion of being paid time-and-a-half as defined by the Fair Labor Standards Act. The benefit begins to phase out when your modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). It phases out by $100 for every $1,000 you exceed the amount. So the phaseout ranges are:
Single: $150,000 – $275,000
Joint filer: $300,000 – $550,000
Example: Ima Working, a single taxpayer with $10,000 of overtime pay and MAGI of $170,000 can deduct $8,000 of her overtime pay. $10,000 overtime pay minus $2,000 or ($170,000 – $150,000)/1,000*$100).
To receive the benefit:
Some tips
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