26 U.S.C. § 225
§ 225. Qualified overtime compensation
Explainer
The overtime deduction
From 2025 to 2028, hourly workers can deduct the “half” in time-and-a-half — up to $12,500, or $25,000 for couples.
In plain English
Section 225, also added in 2025, gives a deduction for qualified overtime compensation. That's only the part of overtime pay above your regular rate, as required by the Fair Labor Standards Act. If you're paid time-and-a-half, the deductible part is the "half", not the whole overtime paycheck.
Who it touches
Hourly and other non-exempt workers who are legally owed overtime under federal law: nurses, warehouse and factory workers, police officers, retail staff and others. Salaried "exempt" employees who aren't owed FLSA overtime don't qualify. Neither does extra pay an employer gives voluntarily beyond what the law requires.
The rules
| Rule | Detail |
|---|---|
| Maximum deduction | $12,500 per year ($25,000 joint) |
| Phase-out | −$100 for every $1,000 of modified AGI over $150,000 ($300,000 joint) |
| Years | Tax years 2025 through 2028 |
| Identification | Social Security number valid for work; married couples must file jointly |
Worked example
Tom earns $20/hour and works 300 overtime hours in 2026 at $30/hour.
- Total overtime pay: 300 × $30 = $9,000
- The premium above his regular rate: 300 × $10 = $3,000, which is his deduction
- In the 12% bracket, that saves him about $360 of federal income tax
Watch out for
- The deduction is for the premium only. A common misunderstanding is that all overtime pay is tax-free.
- Overtime required by a state law or union contract, but not by the FLSA, may not count.
- Payroll taxes still apply to the full overtime pay.
Draft explainer. Figures checked against IRS Rev. Proc. 2025-32 and the current text on November 4, 2026. Not yet reviewed by a licensed tax professional.
Sources
The law as written
Current through Public Law 119-102. Amendment notes omitted.
Structure
There shall be allowed as a deduction an amount equal to the qualified overtime compensation received during the taxable year and included on statements furnished to the individual pursuant to section 6041(d)(4) or 6051(a)(19).
The amount allowed as a deduction under this section for any taxable year shall not exceed $12,500 ($25,000 in the case of a joint return).
The amount allowable as a deduction under subsection (a) (after application of paragraph (1)) shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).
For purposes of this paragraph, the term “modified adjusted gross income” means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
For purposes of this section, the term “qualified overtime compensation” means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed.
Such term shall not include any qualified tip (as defined in section 224(d)).
No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual’s social security number.
For purposes of paragraph (1), the term “social security number” shall have the meaning given such term in section 24(h)(7).
If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.
The Secretary shall issue such regulations or other guidance as may be necessary or appropriate to carry out the purposes of this section, including regulations or other guidance to prevent abuse of the deduction allowed by this section.
No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.