As a CPA, I’ve been receiving a lot of questions about the overtime tax provisions in the One Big Beautiful Bill Act since it was signed into law on July 4, 2025. This is a significant tax break for millions of American workers, but there’s a critical detail many people don’t realize: the qualified overtime amount won’t appear on your 2025 W-2, and you’ll need to request this information directly from your employer. 

What Is the Overtime Tax Deduction?

Starting with tax year 2025 (the return you’ll file in early 2026), eligible workers can deduct a portion of their overtime pay from their taxable income. Specifically, you can deduct the “premium” portion of your overtime—typically the “half” in “time-and-a-half” pay.

Here’s how it works: If you normally earn $20 per hour and work overtime at time-and-a-half ($30 per hour), you can deduct the $10 premium portion for each overtime hour worked. This isn’t about making your overtime tax-free; it’s about reducing your taxable income, which lowers your overall tax bill.

Key Details of the Deduction

Maximum Deduction Amounts:

• If you file as single, head of household, or qualifying widow(er): $12,500

• If you’re married filing jointly: $25,000

Income Phase-Outs: The deduction begins to phase out if your modified adjusted gross income (MAGI) exceeds:

• $150,000 for single filers
• $300,000 for married filing jointly

Who Qualifies:

• You must be a non-exempt employee under the Fair Labor Standards Act (FLSA)
• Your overtime must comply with federal labor standards (generally time-and-a-half for hours over 40 per week)
• You must have a valid Social Security number for work
• The deduction is NOT available for married filing separately status

Duration: This provision is effective for tax years 2025 through 2028 (subject to congressional extension).

The Critical Issue: Getting Your Overtime Information

Here’s what’s causing confusion: For tax year 2025, your W-2 will NOT include a separate line item showing your qualified overtime compensation.

The IRS has designated 2025 as a transition year. Updated W-2 forms with a dedicated box for reporting qualified overtime (Box 12, Code “TT”) won’t be required until tax year 2026. For 2025, the IRS is providing penalty relief to employers who cannot separately track and report this information.

What Means for You

You need to be proactive. Don’t wait until tax season to figure this out. Here’s what I’m advising my clients:

1. Contact your employer or payroll department as soon as possible and request a breakdown of your qualified overtime compensation for 2025.
2. Ask specifically for: The total amount of the overtime premium (not just total overtime pay) that qualifies under FLSA rules. If you received $15,000 in total overtime pay, only one-third of that ($5,000) would typically be the deductible premium portion.
3. Document everything: Keep all pay stubs that show overtime separately. Maintain a personal record of your overtime hours and pay.
4. Request the information in writing: Some employers may provide this through an online portal, an additional written statement, or even in Box 14 of your W-2 (though they’re not required to). Having documentation will be crucial when you file your return.

Calculating Your Qualified Overtime

The IRS has provided helpful examples for different scenarios:

Standard Time-and-a-Half: If your payroll statement shows $15,000 in total overtime pay, you divide by 3 to get the $5,000 qualified overtime premium. This is because time-and-a-half consists of your regular rate plus half, so the premium is one-third of the total.

Double-Time Pay: If you’re paid double-time for overtime, you divide your total overtime pay by 2 to find the premium portion.

Compensatory Time: If you receive comp time at one-and-a-half hours for each overtime hour worked, and you’re paid wages for that comp time, you can include one-third of those wages as qualified overtime compensation.

What Your Employer Must (and Doesn’t Have to) Do

According to IRS guidance:

Encouraged but not required for 2025:

• Provide separate accounting of qualified overtime compensation
• Make information available through online portals, written statements, or other secure methods
• Include the information in Box 14 of your W-2 (optional)

Required starting in 2026:

• Report qualified overtime compensation in Box 12 of Form W-2 using code “TT”
• File proper information returns with the IRS/SSA

The transition relief means your employer won’t face penalties for not providing this breakdown in 2025, but that doesn’t help you claim the deduction. 

Common Questions I’m Hearing

Q: Is all overtime eligible? A: No. It must meet FLSA requirements, typically time-and-a-half for hours over 40 per week. Straight-time bonuses, hazard pay, and shift differentials don’t qualify.

Q: What if my employer can’t provide the breakdown? A: The IRS has indicated they’re allowing “reasonable methods” to estimate qualified overtime for 2025. Work with a tax professional to calculate this based on your pay records. For 2025 only, there’s even a safe harbor rule that lets employers average overtime from July through December.

Q: Can I still claim this if I’m itemizing? A: Yes! This is an “above-the-line” deduction available to both itemizers and those taking the standard deduction.

Bottom Line

The overtime deduction is a valuable new tax break, but claiming it requires preparation. Don’t assume the information will automatically appear on your W-2 for 2025. Reach out to your employer soon to request a detailed accounting of your qualified overtime compensation.

If you’re unsure how to calculate your deduction or whether your overtime qualifies, consult with a tax professional. The rules around FLSA compliance, income phase-outs, and proper documentation can be complex, especially in this first transition year.

The IRS will be releasing additional guidance as we approach filing season, so stay informed and keep checking IRS.gov for updates on the One Big Beautiful Bill provisions.

This article is for informational purposes only and does not constitute tax advice. Individual tax situations vary, and you should consult with a qualified tax professional regarding your specific circumstances.