How the brand new deduction works

It sounds nice, no tax on additional time. However what does it actually imply?

The brand new tax break doesn’t completely eradicate taxes on additional time earnings, however for those who qualify, it may imply extra money in your pocket.

The One Large Lovely 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 additional time pay.

The deduction is momentary, efficient for tax years 2025 by 2028 for additional time pay underneath part 7 of the Truthful Labor Requirements Act (FLSA), affecting about 143 million individuals. Taxpayers can deduct among the pay that exceeds their common pay fee, so for those who get time and a half, you’ll be able to deduct the half. Put one other method, not all OT you earn is deductible. Solely the pay above your common fee is deductible, and the quantity is capped.

The utmost deduction for no tax on additional time 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 fee for all hours labored and additional time at at least 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 in case you are eligible can get a bit complicated, and there are lots of caveats. Some info from the Division of Labor may also 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 now not declare the deduction.

As a way to file, you have to a Social Safety quantity, and for those who’re married, you will need to file collectively to assert the deduction.

Workers who’re paid hourly and different non-exempt workers are eligible to deduct their additional time. Most salaried workers typically don’t qualify. Even in case you are eligible for the federal tax deduction on additional time, some state taxes and different payroll taxes would possibly nonetheless apply.

As a way to declare the deduction, first it is advisable know the way a lot additional time you labored.

Employers will not be required to account for additional time individually for tax yr 2025, however they could. Your additional time pay may seem on a Kind W-2, Kind 1099-NEC, or Kind 1099-MISC.

Since there are lots of methods for employers to doc and pay workers, the IRS says taxpayers can use what they should approximate additional time, a minimum of for 2025.

So, for instance, for those who labored and earned a complete additional time quantity of $15,000, the qualifying additional time is $5,000. The $15,000 is split by three to get the half time of the time-and-a-half fee.

In case your additional time fee is double time, you work the quantity of additional time by taking the overall quantity and dividing it by 4. So for those who made $20,000 in additional time, $5,000 could be the quantity of qualifying additional time.

For tax yr 2026, employers should embody the overall quantity of certified additional time on a Kind W-2 or Kind 1099. Which means 2025 is sort of a transition yr.

The additional time deduction doesn’t occur routinely. To say it, it is advisable fill out a Schedule 1-A (Kind 1040).

In case you 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 must fill out the components which can be relevant to you.

President Trump’s One Large Lovely 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 additional time.

No, the tax deduction for additional time is thru tax yr 2028.

Sure. You need to file a Schedule 1-A and fasten it to your Kind 1040.