"No Tax on Overtime" - New Tax Bill

Article #: 18874

Last Updated: November 24, 2025

 

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Notice 2025-69 provides guidance for taxpayers who are eligible for the federal income tax deduction for qualified overtime compensation (the "no tax on overtime" provision of the new tax bill). For 2025, employers are not required to separately report or account for qualified overtime compensation on the Form W-2 that is provided to an employee (however, employers may provide this information in a statement, or use Form W-2, Box 14 to provide details).

Note  Qualified overtime compensation is the portion of overtime compensation paid to an individual as required under section 7 of the Fair Labor Standards Act (FLSA) that is in excess of the regular rate at which the individual is employed. In other words, the FLSA premium portion of overtime (generally the “half” in time-and-a-half), not the entire overtime payment. State or union overtime rules do not apply for this deduction.

See 29 U.S. Code §§ 201-219 and 29 U.S. Code § 207 for details.

The deduction: 

  • is up to $12,500 (single) or $25,000 (married filing jointly).

  • can be claimed by both itemizing and non-itemizing taxpayers..

  • is not available for taxpayers who file Married Filing Separately (MFS).

  • is subject to a MAGI phase-out starting at $150,000 ($300,000 MFJ).

Note  This new tax bill, was signed into law on July 4, 2025. The One Big Beautiful Bill Act (OBBB or OB3) is now also being referred to by lawmakers as the Working Families Tax Cut Act. You may see one or both names used, but they refer to the same set of tax changes.