No Tax on Overtime

Qualified overtime refers to compensation paid in excess of an employee’s regular rate of pay based on hours worked.

The tax benefit applies only to the portion of overtime equal to the “half” in time-and-a-half pay. Any amounts exceeding this half-time portion, or overtime paid at rates more generous than those required under the Fair Labor Standards Act (FLSA) weekly hours rules, do not qualify for the tax benefit.

The maximum annual deduction is $12,500 for individual filers and $25,000 for married taxpayers filing jointly. The deduction phases out for taxpayers with modified adjusted gross income exceeding $150,000, or $300,000 for joint filers.