Annual cap
The IRS overview lists a maximum annual deduction of $12,500, or $25,000 for joint filers.
Rules overview
Qualified overtime deduction guide
The deduction starts with FLSA-required overtime compensation above the regular rate, then personal tax rules determine what can be claimed.
Not affiliated with the IRS, Treasury, Department of Labor, payroll providers, or tax software vendors. For educational and tracking purposes only.
What may count as qualified overtime compensation
IRS guidance describes qualified overtime compensation as overtime compensation required under FLSA section 7 that exceeds the regular rate of pay.
For typical time-and-a-half overtime, the qualified portion is generally the half-time premium above the regular rate. Amounts paid because of another policy, agreement, or higher premium must still be tested against the FLSA-required portion.
Caps, phase-outs, and taxpayer rules
MAGI phase-out
The deduction phases out when modified adjusted gross income is over $150,000, or $300,000 for joint filers.
Other taxpayer requirements
IRS FAQs describe additional rules, including valid Social Security number requirements and joint filing rules for married taxpayers.
2025 reporting is different from later years
For tax year 2025, employers and payers are not required to separately report qualified overtime compensation on Forms W-2, 1099-NEC, or 1099-MISC, although some may use W-2 Box 14, a portal, or a separate statement.
For tax years 2026 and later, IRS FAQs state that employers and payers are required to separately report qualified overtime compensation on updated forms.
Qualified overtime deduction FAQ
Is every overtime dollar qualified overtime compensation?
No. The starting point is the portion required under FLSA section 7 that exceeds the regular rate. For time-and-a-half overtime, that is generally the half-time premium portion.
Does this site calculate my final tax deduction?
No. It estimates qualified overtime compensation before taxpayer-specific limits, phase-out, filing-status rules, and professional review.
What should I keep for 2025?
Keep pay statements, annual payroll summaries, W-2 Box 14 notes if provided, separate employer statements, and your calculation notes.
Official sources
Source baseline checked 2026-06-25
Review the official guidance directly
IRS FAQ: Qualified overtime compensation deduction
Defines qualified overtime compensation, FLSA overtime eligibility, deduction limits, reporting rules, and taxpayer requirements.
Open sourceIRS overview: No Tax on Overtime deduction
Summarizes the deduction cap, MAGI phase-out thresholds, Social Security number rule, and 2025 reporting note.
Open sourceIRS Notice 2025-69
Provides 2025 methods for individuals estimating qualified overtime compensation when separate reporting is not available.
Open sourceDOL overtime overview
Explains the FLSA overtime baseline for covered, nonexempt employees working over 40 hours in a workweek.
Open source