It sounds nice, no tax on time beyond regulation. However what does it actually imply?
The brand new tax break doesn’t completely remove taxes on time beyond regulation earnings, however in the event you qualify, it may imply extra money in your pocket.
The One Huge Stunning Invoice Act (OBBBA) grew to become legislation on July 4, 2025, and included a number of new tax breaks. One is a brand new deduction for time beyond regulation pay.
The deduction is momentary, efficient for tax years 2025 by way of 2028 for time beyond regulation pay below part 7 of the Truthful Labor Requirements Act (FLSA), affecting about 143 million folks. Taxpayers can deduct among the pay that exceeds their common pay charge, so in the event you get time and a half, you’ll be able to deduct the half. Put one other means, not all OT you earn is deductible. Solely the pay above your common charge is deductible, and the quantity is capped.
The utmost deduction for no tax on time beyond regulation is $12,500 or $25,000 for joint filers, and it phases out primarily based on earnings degree, starting at $150,000 for single filers and $300,000 for joint filers.
The FLSA requires a minimum of minimal wage cost for all hours labored and time beyond regulation at a minimum of time-and-a-half for hours labored in extra of 40 hours, however as you’ll be able to think about, there are exceptions.
Figuring out if you’re eligible can get a bit complicated, and there are numerous caveats. Some info from the Division of Labor may help.
The tax deduction is offered whether or not you itemize deductions or declare the usual deduction in your tax returns. As soon as your earnings is over $150,000 (single filers) or $300,000 (joint filers), you’ll be able to not declare the deduction.
With a view to file, you have to a Social Safety quantity, and in the event you’re married, it’s essential to file collectively to say the deduction.
Workers who’re paid hourly and different non-exempt workers are eligible to deduct their time beyond regulation. Most salaried workers typically don’t qualify. Even if you’re eligible for the federal tax deduction on time beyond regulation, some state taxes and different payroll taxes would possibly nonetheless apply.
With a view to declare the deduction, first you want to know the way a lot time beyond regulation you labored.
Employers will not be required to account for time beyond regulation individually for tax 12 months 2025, however they may. Your time beyond regulation pay may seem on a Type W-2, Type 1099-NEC, or Type 1099-MISC.
Since there are numerous methods for employers to doc and pay workers, the IRS says taxpayers can use what they must approximate time beyond regulation, a minimum of for 2025.
So, for instance, in the event you labored and earned a complete time beyond regulation quantity of $15,000, the qualifying time beyond regulation is $5,000. The $15,000 is split by three to get the half time of the time-and-a-half cost.
In case your time beyond regulation charge is double time, you work the quantity of time beyond regulation by taking the whole quantity and dividing it by 4. So in the event you made $20,000 in time beyond regulation, $5,000 can be the quantity of qualifying time beyond regulation.
For tax 12 months 2026, employers should embody the whole quantity of certified time beyond regulation on a Type W-2 or Type 1099. Meaning 2025 is form of a transition 12 months.
The time beyond regulation deduction doesn’t occur routinely. To assert it, you want to fill out a Schedule 1-A (Type 1040).
If you happen to itemize your taxes, this schedule is along with a Schedule A.
To fill out the Schedule 1-A, you’ll want a calculator and a few primary math abilities. It’s a two-page type, and also you solely have to fill out the components which can be relevant to you.
President Trump’s One Huge Stunning Invoice Act (OBBBA) grew to become legislation on July 4, 2025, and included a number of adjustments to tax deductions, together with a tax deduction for time beyond regulation.
No, the tax deduction for time beyond regulation is thru tax 12 months 2028.
Sure. You will need to file a Schedule 1-A and connect it to your Type 1040.
