Annual cap
The IRS overview lists a maximum annual deduction of $12,500, or $25,000 for joint filers.
Rules overview
Qualified overtime deduction guide
Only the FLSA-required overtime premium above your regular rate may qualify. The amount you can deduct also depends on your income, filing status, and other tax rules.
Not affiliated with the IRS, Treasury, Department of Labor, payroll providers, or tax software vendors. For educational and tracking purposes only.
What may count as qualified overtime compensation
Under IRS guidance, qualified overtime compensation is the premium required by FLSA section 7 above your regular rate of pay.
For typical time-and-a-half overtime, this is generally the extra half-time premium. Pay required by an employer policy or agreement, or paid at a higher overtime rate, does not automatically qualify in full. Check which part the FLSA requires.
Caps, phase-outs, and taxpayer rules
MAGI phase-out
The deduction phases out when modified adjusted gross income is over $150,000, or $300,000 for joint filers.
Other taxpayer requirements
IRS FAQs describe additional rules, including valid Social Security number requirements and joint filing rules for married taxpayers.
2025 reporting is different from later years
For tax year 2025, employers and payers are not required to separately report qualified overtime compensation on Forms W-2, 1099-NEC, or 1099-MISC, although some may use W-2 Box 14, a portal, or a separate statement.
For tax years 2026 and later, IRS FAQs state that employers and payers are required to separately report qualified overtime compensation on updated forms.
For employees, use W-2 Box 12 code TT. If an issued W-2 omits or understates qualified overtime, request Form W-2c from your employer; a pay-stub estimate cannot replace the missing reporting. If overstated, only the actual qualified amount can count. Year-round tracking before the annual W-2 arrives remains useful.
Form 1099-MISC box 14 or Form 1099-NEC box 1d applies only in rare cases where a worker is an employee under the FLSA but an independent contractor for federal tax purposes.
Qualified overtime deduction FAQ
Is every overtime dollar qualified overtime compensation?
No. The starting point is the portion required under FLSA section 7 that exceeds the regular rate. For time-and-a-half overtime, that is generally the half-time premium portion.
Does this site calculate my final tax deduction?
No. It estimates qualified overtime compensation before taxpayer-specific limits, phase-out, filing-status rules, and professional review.
What should I keep for 2025?
Keep pay statements, annual payroll summaries, W-2 Box 14 notes if provided for the 2025 transition year, separate employer statements, and your calculation notes.
Official sources
Source baseline checked 2026-09-08
Review the official guidance directly
IRS FAQ FS-2026-13: Qualified overtime compensation deduction
Defines qualified overtime compensation, FLSA overtime eligibility, deduction limits, reporting rules, and taxpayer requirements.
View official sourceIRS overview: No Tax on Overtime deduction
Summarizes the deduction cap, MAGI phase-out thresholds, Social Security number rule, and 2025 reporting note.
View official sourceIRS Notice 2025-69
Provides 2025 methods for individuals estimating qualified overtime compensation when separate reporting is not available.
View official source2026 Instructions for Forms W-2 and W-3
Explains 2026 Form W-2 reporting, including Box 12 code TT for qualified overtime compensation.
View official sourceDOL overtime overview
Explains the FLSA overtime baseline for covered, nonexempt employees working over 40 hours in a workweek.
View official source