"No Tax on Overtime"-Not Exactly

Starting in 2025, some workers can claim a new Overtime Deduction—but it’s important to understand how it really works.

Only the “extra half” is deductible

Overtime pay is usually 1.5× your regular rate.

Example: $20/hour becomes $30/hour for overtime.

Only the $10/hour “extra half” counts toward this deduction.

Heads‑up on tax brackets

Extra overtime can sometimes push part of your income into the next tax bracket, which may slightly reduce your net benefit. The Overtime Deduction softens the impact, but you will still owe tax on most of your overtime pay.

Why it matters

• This deduction reduces taxable income on top of your standard deduction, even if you don’t itemize.

• It is temporary, available only for 2025 through 2028 under current law.

Key takeaway:

The new Overtime Deduction is a modest perk, not a full exclusion of overtime pay. Understanding this helps you plan without surprises.

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 cover who qualifies and what documentation you can expect in order to claim the deduction.

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.