Maximize Your Earnings: The 2025–2028 Overtime Tax Deduction Guide

December 3, 2025

Introduction

For hourly employees who work extra hours, the federal government is offering a new opportunity to keep more of what you earn. From 2025 through 2028, eligible workers can claim the overtime tax deduction, reducing taxable income by the “premium” portion of overtime pay — the additional half above the regular hourly rate.

Understanding this deduction, accurately tracking overtime hours, and filing correctly can significantly increase take-home pay over the next four years.

How the Overtime Deduction Works

This deduction applies only to the portion of overtime pay that exceeds your standard rate. Key highlights include:

  1. Deduction Limit: $12,500 for single filers; $25,000 for joint filers
  2. Applicable Years: 2025–2028
  3. Above-the-Line Deduction: Reduces adjusted gross income (AGI), even if you claim the standard deduction

Essentially, the IRS allows you to deduct extra overtime pay before taxes, which can result in significant annual savings.

Who Qualifies

To take advantage of this deduction:

  1. Be a non-exempt hourly employee under the Fair Labor Standards Act (FLSA)
  2. Work more than 40 hours per week and receive overtime pay
  3. Have a modified AGI under $150,000 (single) or $300,000 (joint)
  4. Possess a valid Social Security number
  5. Ensure your employer reports overtime correctly on your W-2

Note: Salaried and exempt employees are not eligible.

Steps to Claim the Deduction

  1. Check Your W-2: Overtime may appear in Box 14 or a separate statement.
  2. Claim on Your Tax Return: Use it as an above-the-line deduction to reduce AGI even if you don’t itemize.
  3. Maintain Records: Keep pay stubs, statements, and employer documentation.
  4. Verify Payroll Accuracy: Confirm overtime hours and pay are reported correctly.

Tip: Accurate tracking and documentation maximize the deduction and prevent IRS issues.

Why It Matters

For example, if you earn $8,000 in overtime, the “premium” portion may be $4,000. Deducting this reduces taxable income, potentially saving hundreds of dollars in federal taxes annually. Over the four-year period, total savings could reach several thousand dollars, making this a valuable opportunity for hourly employees.

Frequently Asked Questions

  1. Do I need to itemize to claim this deduction?
    No. This is an above-the-line deduction, so it works even if you take the standard deduction.
  2. Can salaried employees claim it?
    No. Only non-exempt hourly employees under FLSA rules are eligible.
  3. When is the deduction available?
    The deduction applies for tax years 2025–2028, starting with returns filed in 2026 for the 2025 tax year.

Action Plan to Maximize Your Savings

  1. Track all overtime hours and calculate the premium portion.
  2. Confirm W-2 accuracy for overtime pay reporting.
  3. Claim the deduction annually for each eligible year.
  4. Keep organized documentation for IRS verification.

Following these steps ensures you maximize take-home pay and fully benefit from federal overtime tax relief.

Bottom Line: The 2025–2028 overtime tax deduction provides a significant opportunity for hourly workers to reduce taxable income and keep more of their earnings. Accurate tracking, correct reporting, and consistent claiming can make a measurable difference in your annual savings.

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