K R Hoffman & Co. LLC

How the New “No Tax on Overtime” Deduction Works (And What To Bring Your Tax Preparer)

The One Big Beautiful Bill includes a new “No Tax on Overtime” deduction designed to give relief to employees who work extra hours. If you earned overtime in 2025 and beyond, you may qualify for a valuable deduction that reduces your taxable income. Below is a plain‑English overview of what the deduction is, how it is calculated, and what documents you should gather before meeting with your tax preparer.
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What the new overtime deduction is
The law creates a special deduction for certain overtime pay required under the federal Fair Labor Standards Act (FLSA), commonly called the “No Tax on Overtime” deduction.

It applies to the premium portion of overtime (the extra 0.5 in “time‑and‑a‑half”), not necessarily every dollar you earn when you work more than 40 hours.

The deduction is subject to annual caps (for example, up to a set amount for single filers and a higher cap for married couples filing jointly) and may phase out at higher income levels.
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How the deduction is calculated
In simplified terms, the deduction is determined in three main steps.
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Identify qualified overtime compensation
Your employer must first identify how much of your pay counts as FLSA‑required overtime premium for hours above 40 in a workweek. Purely voluntary bonuses or state‑only overtime rules may not count.

Apply the annual dollar cap
The deduction cannot exceed the annual limit set by law for your filing status. If your qualified overtime premium is higher than that cap, the deduction is limited to the cap.

Apply any income phase‑out
At higher income levels, the deduction is gradually reduced and can disappear entirely once your modified adjusted gross income passes certain thresholds.

The deduction is claimed on your federal return and is available whether you itemize or claim the standard deduction.
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What information to give your tax preparer
To make sure you receive every dollar of deduction you qualify for, your preparer needs clear documentation of your overtime.
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Please provide:

All Forms W‑2
Bring W‑2s from every employer you worked for during the year so your preparer can see total wages and tax withholding.

Your final paystub(s)
Your year‑end paystub often shows total hours worked, total overtime hours, and how much overtime pay you received, which helps identify qualified overtime premiums.
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Any employer overtime reports or summaries
Some employers provide a report that specifically breaks out “FLSA overtime” or “qualified overtime” for the year. If you have such a report, include it with your tax documents.

Details about multiple jobs
If you worked overtime for more than one employer, your preparer will need overtime details for each job to calculate your total qualified overtime.
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Your expected filing status and other major income items
Let your preparer know if you are filing single, head of household, or married filing jointly and whether you had significant non‑wage income (such as rental, self‑employment, or investment income), because this can affect any income‑based phase‑out.
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How our firm can help
The new rules are technical, and not all overtime automatically qualifies for the deduction. Our firm will review your W‑2s, paystubs, and employer reports to determine how much of your overtime is eligible and ensure the deduction is correctly claimed on your return.
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If you worked overtime in 2025 or expect to in future years, contact us at 954.591.8290 or schedule online at www.krhoffman.com so we can help you take full advantage of this new tax benefit.

K. R. Hoffman & Co., LLC Trusted Tax and Business Counsel Tax Preparation Accounting Bookkeeping Business Consulting IRS Mergers acquisitions Rental Real Estate

This firm helps individuals and small business owners pay the least amount of tax legally possible while staying fully compliant and stress‑free at filing time. The focus is on proactive planning, clear education, and practical strategies—including new deductions like the “No Tax on Overtime” rules under the One Big Beautiful Bill—to keep more of your hard‑earned money working for you.

Services include year‑round tax planning, personal and business tax preparation, support for self‑employed professionals, and guidance on payroll items such as overtime, bonuses, and fringe benefits. Every engagement emphasizes plain‑English explanations and timely communication so you always understand what is happening with your taxes and why.

Whether you are an employee working long hours, a freelancer, or a growing business, the mission is simple: reduce your tax burden, avoid surprises, and give you confidence that your returns and strategies are done right.

Contact us at 954-591-8290 or [email protected]