The One Big Beautiful Bill Act (OBBBA), SEC. 70202. “NO TAX ON OVERTIME” provides a new temporary annual tax deduction for overtime compensation:

• Up to a $12,500 deduction for single filers.
• Up to $25,000 for married couples filing jointly.

At higher Modified Adjusted Gross Income (MAGI) levels, the deduction is reduced by $100 for every $1,000 over the following income levels:

• Single and head-of-household phaseout begins at MAGI of $150,000.
• Married filing jointly phaseout begins at MAGI of $300,000.

The deduction only applies to the overtime compensation paid above the normal hourly rate.

     Example: Bob earns base pay of $30 per hour and $45 per hour when he works overtime.  His 2025 MAGI is below the phaseout.

• In 2025, he works 520 hours of overtime for total overtime earnings of 520 * $45 = $23,500. The portion of Bob’s income, which is attributable to overtime compensation is eligible for the deduction. In this example that would be 520 * $15 = $7,800.

Tax filers receive the overtime deduction in addition to either itemizing deductions or taking the standard deduction. This temporary annual deduction is available for qualified overtime compensation received from 2025 through 2028.

Sources: “Breaking Down The “One Big Beautiful Bill Act”: Impact Of New Laws On Tax Planning,”  https://www.kitces.com/blog/obbba-one-big-beautiful-bill-act-tax-planning-salt-cap-senior-deduction-qbi-deduction-tax-cut-and-jobs-act-tcja-amt-trump-accounts/

H.R.1 – One Big Beautiful Bill Act https://www.congress.gov/bill/119th-congress/house-bill/1/text

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