CashoutGlossary / Qualified overtime
Qualified overtime
The half-time overtime premium federal law requires for hours over 40, which you can deduct from federal income tax for 2025 to 2028, up to $12,500 a year.
Qualified overtime is the part of your overtime pay you can deduct on your federal income tax return for 2025 through 2028. It's only the premium that section 7 of the FLSA requires: the extra "half" of time and a half. The IRS formula for each workweek is hours over 40, times one half, times your FLSA regular rate.
- What doesn't count: anything above the FLSA half (with double time, only the half counts) and overtime paid only because of a state daily overtime law, a union contract or your employer's own policy. If you're exempt from FLSA overtime, you get no deduction.
- Tipped workers: if your employer takes a tip credit, the half is figured on at least the full minimum wage, so about $3.63 an hour at the federal $7.25, not half of a $2.13 cash wage.
- Limits: up to $12,500 a year, or $25,000 on a joint return. It shrinks by $100 for each full $1,000 of modified AGI over $150,000 ($300,000 joint), and married couples must file jointly.
- Proof: starting with 2026, employers report it on your W-2 in box 12 with code TT, and you can't deduct more than that box shows. If it's missing or low, ask for a Form W-2c.
You claim it on Schedule 1-A, separate from the tips deduction, and you get it whether or not you itemize. It cuts income tax only; overtime is still wages for Social Security and Medicare. The full rules are in our guide to no tax on overtime. Cashout doesn't calculate this deduction yet.
Related terms
Overtime · Schedule 1-A · Form W-2 · Qualified tips · Fair Labor Standards Act (FLSA)
