NO TAX ON QUALIFIED OVERTIME PAY FROM 2025 TO 2028

Starting in tax year 2025, eligible workers across the U.S. may qualify for a federal income tax deduction on certain overtime earnings. This change, set to last through 2028, is one of the most worker-focused policy updates in recent years—and it could have a meaningful impact on your annual tax return.

Whether you work in healthcare, retail, manufacturing, transportation, or public safety, this change may benefit you. And as always, Liberty Tax is here to help you understand the rules, plan ahead, and file smart.

What Counts as Overtime Pay?

Overtime pay generally refers to wages earned beyond 40 hours in a standard workweek, typically paid at one and one-half times your regular rate. This applies to eligible hourly employees covered under the Fair Labor Standards Act (FLSA) and applicable state wage laws.

From 2025 through 2028, individuals who receive qualified overtime pay may deduct the overtime premium portion (the additional half-time amount) from taxable income, up to $12,500 for single filers and $25,000 for married filing jointly. The deduction begins to phase out for taxpayers with modified adjusted gross income (MAGI) over $150,000 for single filers and $300,000 for married filing jointly filers.

How the Tax Deduction Works:

• Overtime compensation must still be reported as income.
• Federal income tax may still be withheld from overtime pay during the year. The benefit is generally claimed when you file your tax return.
• Social Security and Medicare taxes (FICA) still apply to overtime earnings.
• Your Form W-2 will continue to report total wages, including overtime. Any additional reporting requirements will follow IRS guidance.

Who Benefits Most from This Change?

This tax break may be especially helpful for:

• Hourly workers who consistently pick up extra shifts
• Essential workers in public safety, transportation, and healthcare
• Seasonal and retail workers with extended holiday hours
• Anyone working overtime to increase household income

For eligible employees, the deduction reduces taxable income, which may lower overall federal income tax liability.

How It Affects Your Tax Return

Because the deduction reduces taxable income (not payroll taxes), the impact will generally be reflected when you file your return.

Depending on your situation:

• You may owe less federal income tax.
• Your refund could increase if withholding exceeds your final tax liability.
• Lower taxable income may affect eligibility or calculation of certain income-based credits, such as the Earned Income Tax Credit (EITC).

Withholding practices may vary, so reviewing your pay statements and W-4 elections may be helpful.

What You Should Do?

Although the change does not take effect until January 1, 2025, here’s how you can prepare:

1. Track your overtime hours beginning in 2025.
2. Review how much overtime premium pay you earn annually so you can estimate potential tax impact.
3. Talk to a Liberty Tax professional about how this deduction may affect your return.
4. Review your withholding elections if you want to better align paycheck withholding with your expected tax outcome.
5. Monitor IRS guidance for any updates to reporting requirements beginning in 2025.

Let Us Help You Plan Ahead

This policy could make a meaningful difference for millions of workers—but only if it’s applied correctly. Whether you’re unsure how the deduction works, have questions about your W-2, or want help planning for the 2025 tax year, Liberty Tax professionals are here to help. Visit your local Liberty Tax office or book an appointment online. Let us help you file accurately—and make the most of your extra hours.

Disclaimer: This advertisement is for informational purposes only and does not constitute tax advice. Eligibility for the overtime deduction and its impact on your tax return may vary. Each tax situation is unique. This is not a substitute for personalized tax, investment, legal, or business advice. To understand how these changes may affect your tax return, consult with a licensed professional who knows your personal or business circumstances. Taxpayer eligibility for deductions or credits may vary significantly. Actual eligibility and refund outcomes vary. This example is not a guarantee of specific tax results.