Unlocking the 2025–2028 Overtime Tax Deduction: Who Qualifies and How to Maximize Your Savings

Starting in 2025, eligible hourly workers can get a new federal income tax deduction on the overtime portion of their pay. Thanks to the One Big Beautiful Bill Act (OBBBA), this deduction will apply through 2028, giving employees up to four years of potential tax savings.

What Is It?

The deduction covers the “half” portion of time-and-a-half overtime pay required under the Fair Labor Standards Act (FLSA).

Up to $12,500 per individual or $25,000 for joint filers.
Available for tax years 2025–2028.
It’s an above-the-line deduction, meaning you can claim it even if you take the standard deduction.

Who Qualifies

You’re eligible if you:

Are an hourly, non-exempt worker under FLSA.
Work over 40 hours a week and receive overtime pay.
Earn under $150,000 (single) or $300,000 (joint) in modified adjusted gross income.
Have a valid Social Security number and proper W-2 reporting.

How to Claim It

Check your W-2 Form – overtime amounts will appear in Box 14 for 2025 (and a new box starting in 2026).
Claim the deduction when filing your federal return (beginning early 2026).
Keep pay records for verification.
Ask your employer if payroll updates are in place for 2025 reporting.

Why It Matters

This new deduction gives hourly workers a well-deserved boost, cutting taxable income and increasing take-home pay. For example, $10,000 in overtime could mean a $5,000 deduction—translating into real tax savings.

Quick FAQs

Do I have to itemize my deductions?
No. This is an above-the-line deduction, so you can claim it even if you take the standard deduction.
Can salaried employees qualify?
No. Only non-exempt hourly workers who earn overtime pay under FLSA are eligible.
When should I claim it?
You’ll claim it when filing your 2025 tax return (in early 2026).

Tip: Keep your payroll details updated and consult Associated Accountants, LLC to ensure you’re set to claim your full deduction when filing season arrives.