No Tax on Overtime (2025–2028): What Workers Should Know

2 days ago
2 min read

Starting in 2025, a new federal tax provision under Section 70202 may allow many workers to reduce the taxes they pay on overtime income. This rule will apply from 2025 through 2028 and could benefit employees who regularly work extra hours.

How the Deduction Works

Overtime pay is usually calculated as “time-and-a-half.” That means you receive:

Your regular hourly pay, plus
An additional 50% overtime premium

Under the new rule, only the extra premium portion may be deductible.

Example:If your normal pay is $20 per hour, overtime would be $30.The extra $10 premium could qualify for the deduction.

Deduction Limits

There are annual limits on the deduction:

Up to $12,500 for single filers
Up to $25,000 for married couples filing jointly

The benefit begins to phase out for higher incomes:

Over $150,000 for single filers
Over $300,000 for married couples filing jointly

Who Qualifies

You may qualify if you:

✔ Have a valid Social Security Number (SSN)✔ Receive qualified overtime pay✔ File a federal tax return (standard or itemized deduction)

Reporting Requirements

Employers must report qualified overtime pay on:

Form W-2
Form 1099 (when applicable)
Other official statements provided to workers

The IRS and Treasury Department are expected to provide additional guidance for the 2025 tax year.

Why This Matters

This new rule may help workers who frequently earn overtime—such as those in healthcare, hospitality, construction, and service industries—by reducing their taxable income and keeping more of what they earn.