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In the event you earned additional time pay in 2025, you would see a bigger refund throughout the 2026 filing season primarily based on a new tax break enacted through President Donald Trump‘s “massive stunning invoice.”
However lacking particulars on tax forms, comparable to in your W-2 from an employer, might be complicated when submitting returns this 12 months, specialists say.
The “no tax on overtime” deduction permits sure staff to deduct as much as $12,500 for single filers or $25,000 for married {couples} submitting collectively per 12 months from 2025 by 2028. The tax break begins to part out, or get smaller, when earnings exceed $150,000 for single filers or $300,000 for joint filers.
For 2025, your employer is not required to separate additional time from common pay on Kinds W-2, 1099-NEC or 1099-MISC. Which means you may have to calculate certified additional time by yourself throughout the 2026 season.
“Treasury gave employers a 12 months off [from reporting],” stated licensed monetary planner Micha Siegel, founding father of TaxCentric, an advisory agency in Truthful Garden, New Jersey. “However that makes it actually onerous for taxpayers.”
In consequence, many staff should use pay stubs to determine their additional time deduction for 2025, stated Siegel, who can also be a licensed public accountant.
Who qualifies for ‘no tax on additional time’ deduction
The “no tax on additional time” deduction applies to non-exempt staff with earnings lined beneath the Fair Labor Standards Act, or FLSA. The legislation usually contains staff who should obtain no less than 1.5 instances their regular pay fee as soon as they exceed 40 hours per week.
Nonetheless, this definition excludes some workers lined by state or labor contract mandates, in line with the IRS.
You’ll be able to solely deduct the portion of additional time pay that exceeds your common fee. For instance, in case your additional time fee is 1.5 instances your regular fee, you may deduct the one-half portion as much as the yearly limits.
The best way to calculate the ‘no tax on additional time’ deduction
This season, it might be tough to determine your 2025 additional time deduction with out particulars individually reported in your tax varieties, specialists say.
Some employers will report the quantity in field 14 of your W-2, “however solely the great ones,” stated Siegel from TaxCentric.
If the determine is not proven in your W-2, you may want to search out additional time totals through firm payroll software program or in your pay stubs. That ought to present a place to begin to calculate the deduction.
In some instances, you would see the “additional time premium” separated from common compensation on pay stubs or in payroll software program.
Different employers might solely report a year-end lump sum, which requires some math, relying in your additional time fee, in line with the IRS. Here is the calculation:
- for 1.5 instances common pay, divide the lump sum by 3
- for two.0 instances common pay, divide the lump sum by 4
“Beginning with that year-end pay stub will likely be actually, actually useful,” stated Tom O’Saben, director of tax content material and authorities relations on the Nationwide Affiliation of Tax Professionals.
No matter your additional time deduction, it is essential to save lots of paperwork to help the tax break in your return, simply in case the IRS has questions later, O’Saben stated.
