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If you earned overtime pay in 2025, you could see a bigger refund during the 2026 filing season based on a new tax break enacted via President Donald Trump’s “big beautiful bill.”
But missing details on tax forms, such as on your W-2 from an employer, could be confusing when filing returns this year, experts say.
The “no tax on overtime” deduction allows certain workers to deduct up to $12,500 for single filers or $25,000 for married couples filing jointly per year from 2025 through 2028. The tax break starts to phase out, or get smaller, when earnings exceed $150,000 for single filers or $300,000 for joint filers.
For 2025, your employer isn’t required to separate overtime from regular pay on Forms W-2, 1099-NEC or 1099-MISC. That means you’ll need to calculate qualified overtime on your own during the 2026 season.
“Treasury gave employers a year off [from reporting],” said certified financial planner Micha Siegel, founder of TaxCentric, an advisory firm in Fair Lawn, New Jersey. “But that makes it really hard for taxpayers.”
As a result, many workers will have to use pay stubs to figure out their overtime deduction for 2025, said Siegel, who is also a certified public accountant.
Who qualifies for ‘no tax on overtime’ deduction
The “no tax on overtime” deduction applies to non-exempt workers with earnings covered under the Fair Labor Standards Act, or FLSA. The law generally includes workers who must receive at least 1.5 times their normal pay rate once they exceed 40 hours per week.
However, this definition excludes some workers covered by state or labor contract mandates, according to the IRS.
You can only deduct the portion of overtime pay that exceeds your regular rate. For example, if your overtime rate is 1.5 times your normal rate, you can deduct the one-half portion up to the yearly limits.
How to calculate the ‘no tax on overtime’ deduction
This season, it could be tricky to figure out your 2025 overtime deduction without details separately reported on your tax forms, experts say.
Some employers will report the number in box 14 of your W-2, “but only the nice ones,” said Siegel from TaxCentric.
If the figure isn’t shown on your W-2, you’ll need to find overtime totals via company payroll software or on your pay stubs. That should provide a starting point to calculate the deduction.
In some cases, you could see the “overtime premium” separated from regular compensation on pay stubs or in payroll software.
Other employers may only report a year-end lump sum, which requires some math, depending on your overtime rate, according to the IRS. Here’s the calculation:
- for 1.5 times regular pay, divide the lump sum by 3
- for 2.0 times regular pay, divide the lump sum by 4
“Starting with that year-end pay stub will be really, really helpful,” said Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals.
Regardless of your overtime deduction, it’s important to save paperwork to support the tax break on your return, just in case the IRS has questions later, O’Saben said.
