Section 70202 of the One Big Beautiful Bill Act created a new above-the-line deduction for "qualified overtime compensation", the premium half-portion of FLSA-mandated time-and-a-half overtime pay, for tax years 2025 through 2028. The deduction is capped at $12,500 single / $25,000 joint. ² For our medical, manufacturing, and skilled-trade clients with significant hourly workforces, this is a meaningful provision that affects W-2 reporting obligations, payroll software configuration, and individual tax planning.
The most-misunderstood feature: only the premium portion of overtime qualifies. The entire time-and-a-half wage is not deductible, only the additional half. This narrows the population that meaningfully benefits.
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