The One Big Beautiful Bill Act (OBBBA) includes temporary tax deduction for overtime pay.

The One Big Beautiful Bill Act (OBBBA) includes a new temporary federal income tax deduction for overtime pay. Starting in 2025 and lasting through 2028, individuals can deduct up to $12,500 ($25,000 if  MFJ) in overtime premiums. The Adjusted Gross Income limitation is $150,000 for single taxpayers and $300,000 for Married Filing Jointly, with a 10% phase-out. This deduction is not available for taxpayers filing as Married Filing Separately.  

Overtime premiums are the added pay an individual earns. For example, if Employee A earns $16.00/hr and $24.00/hr during overtime, the $8.00/hr difference is the overtime premium. This deduction is limited to overtime required by FLSA to be paid to a non-exempt employee. This means the overtime is due to an hourly employee working more than 40 hours a week. This does not include instances such as an employee getting “double-pay” for a holiday because the extra pay was voluntarily given.  

What does this mean for employers? Employers will need to separately track the amount in overtime premiums employees earn during the tax year. This dollar amount will then be reported on the W-2. Give our offices a call to see what this means for you or your business.