How Higher Income Can Reduce Overtime Deduction
Starting in 2025, the new Overtime Deduction can reduce your taxable income—but a higher income can shrink the benefit.
Income Limits
The deduction begins to phase out if your Modified Adjusted Gross Income (MAGI) exceeds: – $150,000 for single filers – $300,000 for joint filers
The deduction is reduced by $100 for every $1,000 over the limit, down to zero.
Why Extra Overtime Might Backfire
The Overtime Deduction only covers the “extra half” of your time‑and‑a‑half pay. If additional overtime pushes your MAGI above the phaseout limit:
Your deduction is reduced.
The extra income may bump into a higher tax bracket.
The net tax savings can be much smaller than the gross overtime pay.
Example:
Joint filers earn $302,000 MAGI in 2025.
They went $2,000 over the $300,000 limit.
Deduction is reduced by $200 ($100 × 2).
This doesn’t erase the benefit of overtime—but it shows why tracking your income matters if you are close to the limit.
Key Takeaway:
The Overtime Deduction is helpful, but modest. Plan ahead if you earn near the phaseout thresholds—extra overtime could mean less of a deduction and a higher tax bill than expected.
Each week, I share a clear, bite-sized tax insight straight from my continuing education so you can stay informed without sifting through tax changes.
Next week, we shift gears for a little bit to focus on Cyber Security.
Thanks for reading,
Brandy Sparkman, EA
I’ll keep learning so you can stay focused on what you do best.
See you next week for another Tax Minute.
