The OBBBA's overtime deduction gets less attention than its tips counterpart, but it trips up even more people at calculation time — because unlike tips, where the whole tip qualifies, the overtime deduction only covers a slice of your overtime pay. Get that slice wrong and you'll either underclaim a deduction you're entitled to, or overclaim one you're not.
Only the "half" counts — not the whole time-and-a-half
Under the Fair Labor Standards Act, non-exempt employees who work more than 40 hours in a week generally must be paid "time-and-a-half" for the extra hours — 1.5× their regular hourly rate. That 1.5× breaks into two pieces: the straight-time portion (the same 1× you'd earn for a regular hour) and the extra "half" premium on top of it. Only that extra half — the true overtime premium — is what OBBBA lets you deduct. The straight-time portion of those hours was already taxed as ordinary wages, just like any other hour you worked, so it doesn't get a second bite at deduction.
Worked example: you earn $28/hour normally, and work 10 hours of overtime in a pay period at time-and-a-half ($42/hour). Your overtime pay is $420 total (10 × $42). Of that, $280 (10 × $28) is the straight-time portion — already just regular taxed wages. Only the remaining $140 (10 × $14, the extra half) is the qualified overtime amount you can deduct.
The cap: $12,500, or $25,000 filing jointly
The deduction is capped at $12,500 of qualified overtime premium per return for single filers or head of household, and $25,000 for married couples filing jointly — the only one of the two new OBBBA wage deductions where the cap actually doubles for joint filers. Like the tips deduction, it phases out $100 per $1,000 of MAGI above $150,000 (single) or $300,000 (joint), rounded down to the nearest $1,000. Because the overtime cap starts smaller, it fully phases out sooner too: $275,000 MAGI for single filers, $550,000 for joint filers (the tips deduction, with its larger $25,000 starting cap, needs a MAGI of $400,000 to fully phase out for single filers).
Why your 2025 W-2 might not have made this easy
Because OBBBA passed mid-year in 2025, the IRS gave employers a transition period before requiring the qualified overtime premium to be broken out as its own line on the W-2. That left a lot of workers doing the math themselves from pay stubs for their 2025 return — tracking regular rate, overtime hours, and the premium portion by hand. Reporting is expected to be cleaner going forward, but it's worth keeping your own pay stub records regardless, since payroll systems don't always calculate the qualified amount the same way the IRS defines it.
Common mistakes
The single biggest error is deducting the full overtime paycheck instead of just the premium half — that alone can overstate the deduction by 3x. The second is forgetting that state-mandated overtime beyond what federal FLSA requires generally doesn't qualify, which matters in states like California with daily overtime rules. The third is not realizing this deduction, like the tips deduction, does nothing for FICA taxes — Social Security and Medicare are still withheld on the full overtime paycheck, straight-time and premium alike.