What part of your overtime pay just became tax-deductible?
- Viktoriya Barsukova, EA, MBA
- Sep 3
- 2 min read
Don’t scroll past—this matters:
Starting January 1, 2025, a portion of your overtime pay could be federal income tax–free, thanks to a new tax break in the One Big Beautiful Bill Act (QBBA/OBBBA). But only if you know how to qualify. Let’s unpack the who, how much,and fine print of this headline-grabbing provision.
What Does the Law Say?
The QBBA includes a provision called “No Tax on Overtime”, found in Section 70202 of the new tax legislation .
What’s deductible?
The overtime premium—the extra “half” in your time-and-a-half pay—is eligible for deduction, not the full overtime rate .
Limits:
Up to $12,500 annual deduction for individual filers
Up to $25,000 for joint filers .
Who benefits?
Those with modified AGI under $150,000 (single) or $300,000 (joint).
The benefit phases out beyond these thresholds .
Good to know:
Applies whether you itemize or not and is available above-the-line .
Employers must report qualified overtime on W-2s or other official statements .
Who’s Likely to Benefit?
This is tax relief for non-exempt, middle-income workers who regularly earn overtime. But estimates suggest less than 9% of tax filers will benefit—primarily those in industries like healthcare, manufacturing, transportation, and logistics .
And these exclusions matter:
Certain workers may be ineligible, such as those covered by laws like the Railway Labor Act or state-level overtime rules .
What Employers Should Watch
The QBBA directs the Treasury Secretary to issue guidance to prevent abuse or aggressive reclassification schemes .
Quick Recap Table: What part of your overtime pay just became tax-deductible?
Feature | Individual Filers | Joint Filers |
Max Deduction | $12,500 | $25,000 |
AGI Phase-out Begins | $150,000 | $300,000 |
Deduction Type | Overtime premium only | Same |
Eligibility | Non-exempt W-2 workers | Same |
Reporting Requirement | Employer must report qualified overtime | Same |
This benefit runs through tax years 2025–2028, so if you’re eligible, plan sooner, not later.
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