Who Qualifies for the New Overtime Deduction?

Starting in 2025, the Overtime Deduction offers a small tax break on the “extra half” of your overtime pay—but only if you meet the eligibility rules.

Who Qualifies:

You must earn overtime under federal law (FLSA)

• Workers who receive qualified overtime compensation, such as “time‑and‑a‑half” pay, qualify.

• To qualify, your employer must report the qualified overtime compensation.

Your employer must report your qualified overtime separately

• There might be a line on your Form W‑2 showing your total qualified overtime pay, or your employer will provide a statement showing the total amount of qualified overtime compensation. (More reporting guidance coming soon from the IRS)

Social Security number required

• It must be valid for employment and reported on your tax return.

Married couples

• Must file jointly to claim the full $25,000 maximum deduction.

Employer Reporting Matters

• Employers must also submit information returns to the IRS (or SSA) showing each employee’s total qualified overtime.

• For 2025, the IRS is offering transition relief, allowing reasonable reporting methods as payroll systems adapt.

Why this matters:

• Employees need proper reporting to claim the deduction.

• Employers avoid headaches by tracking qualified overtime accurately from the start.

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 how higher income can reduce the deduction and why extra overtime may not always help your bottom line.

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.