No Tax on Overtime 2025: Complete Guide to the FLSA Overtime Tax Deduction

The One Big Beautiful Bill Act (OBBBA) introduced a major tax break for America's hourly workers: the "No Tax on Overtime" provision. If you're a non-exempt employee who regularly works overtime, you could deduct up to $12,500 (single) or $25,000 (married filing jointly) from your federal taxable income each year.

1. What Is the No Tax on Overtime Provision?

The No Tax on Overtime provision, part of H.R.1 (One Big Beautiful Bill Act), creates a federal income tax deduction for overtime pay earned by eligible workers. Here's what you need to know:

• What It Covers: Pay received for hours worked beyond 40 in a workweek at the overtime rate (typically 1.5x regular rate)
• Maximum Deduction: Up to $12,500 for single filers, $25,000 for married filing jointly
• Above-the-Line: Reduces your AGI whether you itemize or take the standard deduction
• Effective Period: Tax years 2025, 2026, 2027, and 2028
• What's Still Taxed: Overtime remains subject to Social Security, Medicare, and state income taxes

2. FLSA Eligibility: Who Qualifies?

To qualify for the No Tax on Overtime deduction, you must be classified as a "non-exempt" employee under the Fair Labor Standards Act (FLSA). This is the critical eligibility requirement.

You Likely Qualify If:

• You are paid by the hour (not a fixed salary)
• You track your hours worked
• You receive time-and-a-half (1.5x) for hours over 40/week
• Your pay stub shows regular hours and overtime hours separately
• You earn less than $58,656 annually (2025 salary threshold)

You Likely Do NOT Qualify If:

• You receive a fixed salary regardless of hours worked
• You are classified as "exempt" from FLSA overtime rules
• You are an executive, administrator, or professional earning over the salary threshold
• You are a business owner or independent contractor

3. Exempt vs. Non-Exempt: What's the Difference?

4. Deduction Amounts by Filing Status

5. Income Phase-Outs

Like other OBBBA deductions, the overtime deduction has income limits:

• Single/HoH/MFS: Phase-out begins at $150,000 MAGI
• Married Filing Jointly: Phase-out begins at $300,000 MAGI
• Phase-out rate: Deduction reduced by 2% for every $1,000 over threshold

For example, a single filer with $160,000 MAGI would see their maximum reduced by $200 (10 × $1,000 × 2% = $200 reduction per $1,000 increment over threshold).

6. How to Calculate Your Deduction

Step 1: Find Your Total Overtime Pay

Look at your year-end W-2 or add up your pay stubs. Calculate only the overtime portion (hours over 40 × 1.5 rate).

Step 2: Determine Your Maximum

Based on your filing status: $12,500 (single) or $25,000 (MFJ)

Step 3: Apply Phase-Out (if applicable)

If your MAGI exceeds the threshold, reduce your max accordingly.

Step 4: Take the Lesser Amount

Your deduction = MIN(Overtime Pay, Maximum after phase-out)

7. How to Claim on Your Tax Return

1. Gather Pay Stubs: Collect all 2025 pay stubs showing overtime hours and pay
2. Verify W-2: Confirm overtime amount matches your records
3. Complete Schedule 1: Enter the deduction on Schedule 1 (Form 1040), Part II
4. Keep Records: Retain pay stubs for at least 3 years in case of audit

8. Industries That Benefit Most

Workers in these industries commonly work overtime and will benefit most:

9. Frequently Asked Questions