Simple Explanation of How to Deduct Part of Overtime Pay on Your 2025 Tax Return
- Alejandro
- 2 hours ago
- 3 min read
From the 2025 tax year through 2028, the IRS has implemented a new federal deduction that benefits millions of workers who receive overtime pay. This measure, established under the OBBBA law, allows taxpayers to deduct the “premium” portion of their overtime pay, meaning the additional amount earned for working more than 40 hours per week.
What Is Considered “Qualified Overtime”?
Not all extra pay qualifies. Only the portion of overtime pay that exceeds your regular hourly rate and is required by federal law under the Fair Labor Standards Act (FLSA) can be deducted.
For example, if your regular rate is $20 per hour and you are paid $30 per hour for overtime, only the additional $10 per hour is deductible.
Who Qualifies?
Verify that your position is covered by the FLSA, confirm that you are classified as a non-exempt employee.
Income Limits (MAGI) for the Qualified Overtime Deduction – 2025
According to the OBBB law and IRS guidance, the income limits are:
$150,000 MAGI for single filers
$300,000 MAGI for married filing jointly.
How Much Can You Deduct?
Up to $12,500 per individual.
Up to $25,000 for married couples filing jointly.
What Do You Need to Claim This Deduction?
Pay stubs clearly showing regular hours, overtime hours, and pay rates.
Calculation of the deductible overtime amount for each pay period.
An annual record of all deductible amounts.
EXEMPT Categories (Do NOT Qualify for the Overtime Deduction) Under the FLSA
Executive Employees:
Supervise at least two full-time employees.
Have authority to hire or fire, or significantly influence those decisions.
Primary duty is management.
Administrative Employees:
Perform non-manual office work.
Duties relate to business operations.
Exercise independent judgment on significant matters.
Professional Employees:
Learned professionals (lawyers, accountants, engineers, teachers, registered nurses).
Creative professionals (artists, writers, designers).
Require advanced knowledge and specialized education.
Computer Employees:
Systems analysts, programmers, software engineers.
Perform advanced technical duties.
May be paid hourly or salaried (subject to a specific federal minimum).
Outside Sales Employees:
Work primarily outside the employer’s place of business.
Main duty is sales or obtaining contracts.
No fixed schedule or direct supervision.
Highly Compensated Employees:
Earn more than $107,432 annually (per current DOL rules)
Perform at least one duty of an executive, administrative, or professional employee.
Summary: Key Points to Consider for the Overtime Deduction
To claim the Overtime Premium Deduction under Internal Revenue Code §225 (OBBBA):
You must be a NON-EXEMPT employee under the FLSA.
You must receive mandatory overtime pay (time and a half).
Only the premium portion (the extra 0.5x) is deductible.
If the worker is classified as exempt, they do NOT qualify even if the employer "voluntarily pays overtime".
Simple Example
Suppose you worked 45 hours in one week. Your regular rate is $20 per hour, and your overtime rate is $30 per hour.
Total hours worked: 45
Regular hours: 40
Qualified overtime hours: 45 − 40 = 5
Premium amount per hour: $30 − $20 = $10
Deductible overtime amount: 5 × $10 = $50
The $50 is the amount you may include as a deduction on your tax return.
Where Can You Get Help?
At Professional Taxes LLC, we help you:
Review your pay stubs.
Calculate your exact deduction.
Prepare your tax return with all available benefits.
Don’t Miss This Opportunity!
Thousands of workers are already reducing their tax burden thanks to this new deduction. If you work overtime, this measure was designed for you.
Contact us today and secure your benefit.
PROFESSIONAL TAXES LLC.
480-3430299
3162 E Roeser Rd. Phoenix, AZ. 85040
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