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What Counts as Qualified Overtime? Only the 'Half' Portion
Educational information only. Not tax advice. Not affiliated with the IRS. Check IRS.gov or a tax professional about your own situation. Last checked against IRS sources: October 17, 2026. Examples use made-up numbers.
Short answer: The overtime deduction is for compensation above your regular rate that is required under section 7 of the Fair Labor Standards Act (FLSA). For time-and-a-half, that is only the "half" portion, not the full overtime pay. The maximum is $12,500 per year ($25,000 if married filing jointly), reduced above the income thresholds.
The IRS wording
- FS-2025-03: individuals may deduct the pay that exceeds their regular rate, "such as the 'half' portion of 'time-and-a-half' compensation", that is required by the FLSA.
- 2026 W-2 instructions (code TT): "only the 'half' portion of 'time-and-a-half' compensation would be reported using code TT."
- Deduction years: tax years beginning after 2024 and ending before 2029.
Made-up examples (our arithmetic)
- Regular rate $20/hour, 10 overtime hours at time-and-a-half ($30/hour). Total overtime pay: $300. The "half" portion: 10 × $10 = $100. Only $100 is qualified overtime.
- Same worker, over a year: if the premium portion adds up to $4,000, the line 15 amount is $4,000 (below $12,500).
- Cap: premium of $15,000 for a single filer → line 15 is limited to $12,500.
- Aggregate method for 2025 (Notice 2025-69): if your statement shows aggregate overtime pay of $9,000 including the regular-rate portion, and you were paid time-and-a-half over 40 hours in a workweek, the Notice allows one-third: $3,000.
What does not count
Per the sources: overtime pay beyond what the FLSA requires, or the regular-rate portion. We did not verify how the IRS treats state-law overtime, bonuses or other premium pay in every case.
Where it goes on the form
Schedule 1-A (2025) Part III: line 14a W-2 box 1 amount (see instructions if not on the W-2), line 14b 1099-NEC/1099-MISC, line 14c total, line 15 smaller of 14c or $12,500 ($25,000 MFJ), then the phase-out lines. See phase-out explained.
Conditions
Valid SSN (and spouse, if married), joint filing if married. The deduction is available whether you itemize or not (FS-2025-03).
FAQ
Is the whole overtime pay deductible? No, just the premium portion.
Does double time change this? Notice 2025-69 describes fractions for higher rates.
Are 1099 workers eligible? FS-2025-03 and Schedule 1-A refer to 1099-NEC/1099-MISC amounts; the eligibility details for non-employees are not verified here.
What we could not verify
- Treatment of non-FLSA overtime, exempt employees and state-law overtime.
- 2026 form line changes.
- Whether code TT always equals the line 14a amount.
Sources (IRS)
- IRS, One Big Beautiful Bill Act: Tax deductions for working Americans and seniors, FS-2025-03 (July 14, 2025; updated July 25) — https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors (read October 17, 2026)
- IRS, General Instructions for Forms W-2 and W-3 (2026) (Jan 29, 2026) — https://www.irs.gov/pub/irs-pdf/iw2w3.pdf (read October 17, 2026)
- IRS, Notice 2025-69 (transition relief for tax year 2025) — https://www.irs.gov/pub/irs-drop/n-25-69.pdf (read October 17, 2026)
- IRS, Schedule 1-A (Form 1040), Additional Deductions, 2025 (created 11/4/25) — https://www.irs.gov/pub/irs-prior/f1040s1a--2025.pdf (read October 17, 2026)
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Not tax advice. Examples use made-up figures. Nothing here has been reviewed by a tax professional. See the disclosure.