01/28/2026
Overtime Income Deduction
The deductible amount is the amount that exceeds your regular
rate of pay—the “half” portion of “time-and-a-half” compensation.
As with tips, to qualify, the overtime pay must be reported on a
Form W-2, Form 1099, or other specified statement furnished
to the taxpayer. For the overtime deduction, the IRS notes two
criteria from the outset: (1) It only applies if you received overtime,
and (2) you and/or your spouse who received qualified tips must
have a valid Social Security number to claim the deduction.
This deduction generally only applies to employees, unless
an independent contractor is subject to the FSLA rules. Or if the
worker is incorrectly classified as an independent contractor, when
they are in fact an employee.
Your overtime information won't be reported on your 2025 W-2, but the 2026 W-2 will be modified to include this allocation, so you'll need to provide that information for 2025.
