Also see: In-Depth: IRS Guidance for Recipients of Qualified Tips or Overtime Pay 2025.

CPA Sample Client Letter: Deduction for Overtime Pay.

(Parker Tax Publishing December 2025)

Dear [Client],

This year's sweeping tax and spending bill, the "One Big Beautiful Bill," introduced a new tax break for 2025 to 2028 for taxpayers who receive overtime pay.

The new law provides a deduction of up to $12,500 ($25,000 for married taxpayers filing joint returns) for overtime pay. The $25,000 limit for married taxpayers filing a joint return applies to the couple overall. It doesn't matter if the qualified overtime was earned entirely or disproportionately by one of the spouses.

The overtime deduction is allowed regardless of whether you itemize your deductions or take the standard deduction. However, you must have a Social Security number, and include it on your tax return, in order to claim the deduction. In addition, if you're married, you can only claim the deduction if you file a joint return with your spouse.

The deduction is phased out if your modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return). (Note: Unless you live outside the U.S., your "modified" adjusted gross income will likely be the same as the adjusted gross income reported on your tax return).

Qualified Overtime

The overtime deduction is allowed for compensation required under the Fair Labor Standards Act (FLSA) that is in excess of the regular rate at which you are paid. In other words, it's available for the "half" portion of "time-and-a-half" pay.

Certain types of additional compensation that aren't required under the FLSA don't qualify for the deduction. For instance, you can't claim the overtime deduction for bonuses, vacation pay, sick pay, tips, reimbursements for business expenses, and the like.

Phaseout

The deduction for qualified overtime is reduced by $100 for each $1,000 by which your modified adjusted gross income exceeds $150,000 ($300,000 in the case of joint filers).

If you'd like to discuss the new deduction for qualified overtime pay and the potential impact on your tax bill, please don't hesitate to call.

Sincerely,

[Your Name, Your Firm]

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com