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No Tax on Overtime 2025

Nothing in this documentation is intended to be nor should it be construed as tax advice. This page is intended to provide information to state employees regarding paid overtime as directed by US Public Law 119-21, commonly referred to as the One Big Beautiful Bill Act (OBBBA). For guidance regarding your personal situation, please contact a tax professional and/or your agency human resources office.

Under this law, for tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, or "Overtime Premium" (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2.

  • Maximum annual deduction is $12,500 ($25,000 for joint filers).
  • Deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers).

The deduction is available for both itemizing and non-itemizing taxpayers.

For more information, refer to the IRS guidance: Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025.
 

Frequently Asked Questions

How will this information appear on my Form W-2?

In Tax Year 2025, your Form W-2 will include a separate code “FLSA OT Prem” in Box 14 showing your total qualified overtime compensation for the year. This amount will help you determine whether you can take the new federal deduction. Employees who have qualified overtime in Box 14 will receive an email prior to distribution of W-2 statements with more information. 

This shows where Box 14 is located on a W-2.

What will be reported in Box 14 of an employee’s W-2?

  • Qualified overtime compensation will be reported in Box 14 of the W-2 as “FLSA OT Prem”
  • Qualified overtime compensation includes only the premium (half) portion of the following wages paid to an employee while subject to the requirements of FLSA.
    • Overtime
    • Comp Leave
    • Comp Leave Payout

What if Box 14 shows no “FLSA OT Prem”?

Employees that do not have “FLSA OT Prem” in Box 14 of the W-2 did not earn any qualified overtime compensation

  • The following wages are excluded (not reported in Box 14) if paid to an employee while NOT Subject to the requirements of FLSA.
    • Comp Leave
    • Comp Leave Payout

Who can answer my questions about the calculation of my overtime?

Your agency human resources office should be able to respond to any questions which you have regarding your premium overtime calculation.

Where can I find federal publications on this new law?