The new law only applies for Federal taxes (Form 1040).
Wisconsin has not said if the overtime is tax-free.
If you earn overtime pay, there’s a new tax rule starting in 2025 that could help you save money. Here’s a simple breakdown of this new deduction:
What’s the New Overtime Deduction?
From 2025 to 2028, you can deduct certain overtime pay from your taxable income. Here’s how it works:
- What Counts as Qualified Overtime Pay?
- The extra portion of your “time-and-a-half” overtime pay that goes beyond your regular hourly rate.
- This must be overtime required by the Fair Labor Standards Act (FLSA) and reported on a Form W-2, Form 1099, or another official statement.
- How Much Can You Deduct?
- Up to $12,500 per year (single filers).
- Up to $25,000 per year (joint filers).
- Income Limits Apply:
- The deduction phases out if your income is over:
- $150,000 (single filers).
- $300,000 (joint filers).
- The deduction phases out if your income is over:
Who Qualifies for This Deduction?
Most workers who earn overtime can claim this deduction, but there are some rules to follow:
- Who’s Eligible?
- Both taxpayers who itemize their deductions and those who don’t.
- What’s Required?
- Include your Social Security number on your tax return.
- If you’re married, you must file jointly to claim the deduction.
What Employers Must Do
Employers or other payors are required to:
- File reports with the IRS (or Social Security Administration) showing how much qualified overtime pay they paid you.
- Very Important Provide you with a statement listing your total overtime earnings for the year.
This new deduction could mean big savings for workers who log extra hours. Be sure to track your overtime pay, check if you qualify, and follow the rules to claim this tax break!
