Overtime Pay Deduction

The Act creates a federal income tax deduction for qualified overtime compensation received during the year. The deduction is limited to $12,500 ($25,000 in the case of a joint return) and is effective for tax years 2025-2028. Qualified overtime compensation is overtime pay required under the Fair Labor Standards Act. This deduction begins to phase out for those with MAGI above $150,000 ($300,000 MFJ). Qualified overtime must be reported separately on a W-2 or a 1099 if the taxpayer is not an employee.