Overtime Premium Tax Deduction Calculator
Calculate your eligible 2025 tax deduction for overtime premium pay
What is the Overtime Premium Deduction?
New for 2025-2028: Under the One Big Beautiful Bill Act (OBBBA), you can deduct the overtime premium portion of your overtime pay from your federal taxable income.
What's Deductible: The 0.5× premium above your base rate for time-and-a-half. If you earn $25/hour regular and $37.50/hour OT, the premium is $12.50/hour.
Limits: $12,500 (single), $18,750 (HOH), or $25,000 (joint). Phase-out applies above income thresholds.
📚 Understanding the Overtime Premium Deduction
What is it?
The Overtime Premium Deduction is a new tax benefit available for tax years 2025 through 2028 under the One Big Beautiful Bill Act (OBBBA). It allows eligible workers to deduct the "premium" portion of their overtime pay from their federal taxable income.
What is the "Premium" Portion?
When you work overtime, you typically earn 1.5× your regular rate. The "premium" is the extra 0.5× portion above your regular rate. For example:
- Regular rate: $25/hour
- Overtime rate: $37.50/hour (1.5×)
- Premium portion: $12.50/hour (0.5×) ← This is what's deductible
Deduction Limits:
- Single filers: Maximum $12,500 per year
- Married filing jointly: Maximum $25,000 per year
- Married filing separately: Maximum $12,500 per year
- Head of household: Maximum $18,750 per year
- Qualifying widow(er): Maximum $25,000 per year
Income Phase-Out:
The deduction begins to phase out if your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds:
- Single filers: Phase-out starts at $150,000 MAGI
- Married filing jointly: Phase-out starts at $300,000 MAGI
- Married filing separately: Phase-out starts at $150,000 MAGI
- Head of household: Phase-out starts at $225,000 MAGI
- Qualifying widow(er): Phase-out starts at $300,000 MAGI
- For every $1,000 above the threshold, the deduction is reduced by $100
Example:
A single filer with $160,000 MAGI is $10,000 above the $150,000 threshold. Their deduction would be reduced by $1,000 ($10,000 ÷ $1,000 × $100). If their calculated premium is $10,000, their eligible deduction would be $9,000.
Important: This calculator provides estimates only. Consult with a tax professional for personalized advice and to ensure you meet all eligibility requirements.
❓ Frequently Asked Questions
Who is eligible for this deduction?
Any worker who received overtime pay in 2025 and meets the income requirements. The deduction is available for tax years 2025 through 2028.
Do I need to itemize to claim this deduction?
No, this is an above-the-line deduction, meaning you can claim it even if you take the standard deduction. It reduces your Adjusted Gross Income (AGI).
What if I work multiple jobs with different hourly rates?
You'll need to calculate the premium for each job separately based on that job's regular hourly rate, then sum the totals. The combined premium is subject to the same deduction limits.
Can I claim this if I'm self-employed?
This deduction applies to employees who receive overtime pay. Self-employed individuals typically don't receive "overtime" in the traditional sense, so they may not be eligible. Consult a tax professional for your specific situation.
What documentation do I need?
Keep your pay stubs and W-2 forms that show your regular and overtime hours. You'll need to calculate the premium portion yourself or have your employer provide this information.
Is this deduction available in future years?
Yes, the deduction is available for tax years 2025, 2026, 2027, and 2028. After 2028, the deduction expires unless extended by Congress.