The short answer: if you're paid overtime that federal law requires, you can deduct the extra part of that pay, the "half" in time-and-a-half, up to $12,500, or $25,000 if you're married filing jointly. You can take it whether or not you itemize. It phases out at higher incomes, and you still pay Social Security and Medicare tax on all of your overtime.
The deduction started with 2025 returns and runs through the 2028 tax year. Here's how it works on the return you file in early 2027.
What counts as qualified overtime
The deduction covers qualified overtime compensation: the part of your overtime pay that's above your regular rate, when the overtime is required by section 7 of the Fair Labor Standards Act (FLSA).
The FLSA generally requires employers to pay non-exempt employees at least one and a half times their regular rate for hours over 40 in a workweek. So for most hourly workers:
- Your regular pay for overtime hours is not deductible.
- The extra half is deductible.
Example: finding the qualified part
Jordan earns $24 an hour. Last week Jordan worked 46 hours.
| Hours | Rate | Pay | |
|---|---|---|---|
| Regular hours | 40 | $24 | $960 |
| Overtime hours | 6 | $36 | $216 |
| Qualified overtime (the extra $12 an hour) | 6 | $12 | $72 |
Of the $216 Jordan earned for overtime, $72 is qualified overtime compensation.
What usually doesn't count
- Overtime your employer pays by choice, beyond what the FLSA requires. For example, time-and-a-half for working more than 8 hours in a day when you didn't work more than 40 hours that week, or double time beyond the FLSA's time-and-a-half.
- Overtime required only by a state law or a union contract, and not by the FLSA.
- Overtime for employees who are exempt from the FLSA's overtime rules, such as many salaried managers and professionals.
If you aren't sure how much of your overtime qualifies, your employer's payroll department is the best place to ask. For 2026, employers report the qualified amount on your W-2.
How much you can deduct
- Up to $12,500 if you're single, head of household or a qualifying surviving spouse.
- Up to $25,000 if you're married filing jointly. That limit is for the two of you together.
Married couples who file separately can't take this deduction. You, or your spouse if they earned the overtime, need a Social Security number that's valid for work.
The income limit
The deduction shrinks once your modified adjusted gross income (MAGI) passes $150,000, or $300,000 if married filing jointly. For most people, MAGI is the adjusted gross income on Form 1040.
On Schedule 1-A:
- Subtract $150,000 (or $300,000) from your MAGI.
- Divide by $1,000 and round down to a whole number.
- Multiply by $100. That's your reduction.
Worked examples
Example 1: A warehouse worker. Pat is single and earns $58,000, including $9,000 of qualified overtime (the "half" part). Pat's MAGI is $58,000.
| Step | Amount |
|---|---|
| Qualified overtime | $9,000 |
| Capped at $12,500 | $9,000 |
| MAGI over $150,000? | No |
| Overtime deduction | $9,000 |
At Pat's income, that deduction is taxed at 12% otherwise, so it saves about $1,080 in federal income tax.
Example 2: Two nurses, married filing jointly. Chris and Dana are both nurses who pick up overtime. Their W-2s show $14,000 and $13,500 of qualified overtime. Their MAGI is $214,000.
| Step | Amount |
|---|---|
| Total qualified overtime | $27,500 |
| Capped at $25,000 (joint) | $25,000 |
| MAGI over $300,000? | No |
| Overtime deduction | $25,000 |
Example 3: Partly phased out. Lee is single with $12,000 of qualified overtime and MAGI of $163,400.
| Step | Amount |
|---|---|
| Capped amount | $12,000 |
| MAGI minus $150,000 | $13,400 |
| Divided by $1,000, rounded down | 13 |
| Reduction (13 × $100) | $1,300 |
| Overtime deduction | $10,700 |
Where to find your number
For 2026, your Form W-2, box 12, code TT shows your total qualified overtime compensation. That amount is already included in your wages in box 1.
If you're paid on a Form 1099 and the payer was required to pay you FLSA overtime, the qualified amount may be on a separate statement from the payer. If nobody reported it, Schedule 1-A's instructions explain how to figure it yourself from your pay records.
How you claim it
The deduction goes on Schedule 1-A, Part III. The total from Schedule 1-A flows to your Form 1040 and lowers your taxable income.
Navo includes this deduction. It reads qualified overtime from box 12 of your W-2 and fills in Schedule 1-A for you.
Things people often get wrong
- Deducting the whole overtime paycheck. Only the premium part counts. At time-and-a-half, that's one third of your overtime pay.
- Expecting a bigger paycheck. The deduction is claimed on your tax return. It doesn't change Social Security or Medicare tax, and your employer may still withhold income tax on overtime as before.
- Counting state or union overtime. If the FLSA didn't require it, it usually doesn't qualify.
- Filing separately. Married couples must file jointly to take the deduction.
- Assuming your state follows. Many states start from federal adjusted gross income, which this deduction doesn't change, so your overtime may still be taxed by your state.
Frequently asked questions
Do I have to itemize? No. The overtime deduction works with the standard deduction or itemized deductions.
I'm salaried. Can I take this deduction? Only if you're a non-exempt employee who's owed FLSA overtime. Most salaried managers and professionals are exempt, so their overtime doesn't qualify.
Can I take both the tips deduction and the overtime deduction? Yes, if you qualify for both. Each has its own cap.
My W-2 doesn't show code TT. What should I do? Ask your employer for a corrected W-2 or a statement of your qualified overtime. Keep your pay stubs, since they show your overtime hours and rates.
How long does this deduction last? It's scheduled to apply through the 2028 tax year unless Congress changes it.
Related guides
This post is general information, not tax advice for your situation. Sources: IRS, Working Families Tax Cuts: individuals and workers; 2025 Schedule 1-A (Form 1040); 2026 Instructions for Forms W-2 and W-3.