Extra shifts can mean extra money for bills, savings or the next family expense. If you have heard “no tax on overtime,” you may be wondering whether those hours will also bring a tax break.

The new federal deduction can help eligible workers. The part that often surprises people is which portion of overtime pay qualifies. It generally isn’t the entire amount you earned during the extra hours.

Start with what the deduction covers

The One Big Beautiful Bill Act, or OBBBA, created the deduction for tax years 2025 through 2028. It can be claimed with the standard deduction or with itemized deductions, when the requirements are met. IRS overview for workers

Qualifying overtime is tied to the federal Fair Labor Standards Act, usually called the FLSA. An “overtime” label on a pay stub doesn’t establish eligibility by itself. The qualifying amount generally comes from the required premium above your regular rate. IRS overtime overview

A simple paycheck example

Suppose your regular rate is $24 an hour, you have no other pay affecting that rate, and qualifying time-and-a-half overtime pays $36 an hour.

  • Regular-rate portion: $24.
  • Required overtime premium: $12.
  • Total payment for one overtime hour: $36.

The $12 premium is the part that may qualify. Five such hours would produce $60 of qualifying premium, before the return’s deduction limits are applied—not a $180 deduction for all five hours of pay.

This example assumes FLSA-required overtime. Bonuses, different pay arrangements and special employment rules can change the calculation. Department of Labor overtime guidance

Extra pay doesn’t always mean qualifying overtime

The FLSA doesn’t require extra pay just because work occurs on a weekend or holiday; qualifying overtime hours on those days are a separate matter. Extra premiums under an employer policy need a review against the federal rules. Department of Labor requirements

If you aren’t sure, ask payroll whether the payment is FLSA-qualified overtime. You don’t need to make that determination alone by studying every line of a pay statement.

There are annual and income limits

The annual deduction is capped at $12,500, or $25,000 on a joint return. It starts to decrease when modified adjusted gross income exceeds $150,000, or $300,000 for joint filers. Married taxpayers generally must file jointly, and the worker claiming the benefit needs a qualifying Social Security number. IRS limits and filing requirements

A deduction reduces taxable income. A $1,000 deduction doesn’t automatically produce a $1,000 refund. The benefit depends on the rest of your return, and Social Security and Medicare taxes generally still apply to overtime wages. Updated IRS guidance

Check the reporting rule for 2026 and later

For 2026 overtime, employers must separately report the qualifying amount in W-2 box 12, code TT. If it is missing or understated, current IRS guidance requires a corrected employer-furnished W-2 to include the omitted amount in the deduction. Pay stubs alone don’t replace that requirement. The IRS provided different transition relief for 2025. Updated August 2026 IRS FAQ

When your year-end form arrives, flag a missing or questionable amount early. We can review it with you before the return is filed.

What should you bring?

  • W-2s from every employer and any corrected forms.
  • Year-end payroll summaries and relevant pay statements.
  • Your regular rate and a description of the extra pay.
  • Any payroll explanation of qualifying overtime.

Federal and New York tax treatment need separate review. Don’t assume the federal deduction removes state tax from the same earnings.

For workers in Buffalo and Western New York, we can help connect the paycheck details to the return. Request a Free Consult or send records through our secure Client Portal. Start with your actual forms rather than the headline alone.

You don’t have to figure this out alone

You don’t have to calculate the qualifying overtime deduction on your own. At Ziggy’s Tax Advantage, we review your forms, handle the calculations and check the credits and deductions you qualify for. We help you claim every dollar you’re entitled to, so you can spend less time worrying about the tax details.