How overtime pay works
Under the Fair Labor Standards Act, non-exempt workers earn at least 1.5 times their regular rate for hours over 40 in a workweek. Some employers pay double time for holidays or long shifts, and a few states, including California, also require daily overtime.
The federal overtime deduction (2025–2028)
The One Big Beautiful Bill Act lets eligible workers deduct qualified overtime from federal taxable income. Only the extra "half" of time-and-a-half that federal law requires counts. At $25 an hour, that's $12.50 for each overtime hour, not the full $37.50.
| Rule | Single / head of household | Married filing jointly |
|---|---|---|
| Maximum deduction | $12,500 | $25,000 |
| Phase-out starts at MAGI | $150,000 | $300,000 |
| Reduction | $100 per $1,000 over | $100 per $1,000 over |
You can take it whether or not you itemize. Married couples must file jointly, and you need a valid Social Security number. Daily overtime required only by state law, and overtime your employer pays voluntarily, don't qualify. Source: IRS guidance on the One Big Beautiful Bill Act.
Frequently asked questions
Does the deduction lower my paycheck withholding?
Not automatically. You claim it on your tax return. You can update your Form W-4 if you want less withheld during the year.
Is overtime taxed at a higher rate?
No. Overtime is added to your income and taxed at your normal bracket. A big overtime check can look heavily taxed because payroll withholding treats it as if you earned that much every period.
Do salaried workers get overtime?
Salaried workers who earn under the federal salary threshold and aren't in an exempt job category can still be owed overtime. Check with the Department of Labor or your state labor agency.