Gift Planning
Learn how others have made an impact through their acts of giving to our organization and others. Explore the many benefits of charitable gift planning.
More
Find out What to Give and learn about the best assets to make a planned gift. Learn about gifts of cash, securities and property. Learn How to Give and discover gift options that provide tax and income benefits. Discover the best planned gift to meet your goals.
More
In the recent Presidential election, both candidates supported the concept of removing taxes on overtime. The One Big Beautiful Bill Act signed on July 4, 2025, created an overtime exclusion of up to $12,500 for years 2025 to 2028. The overtime pay must be in excess of the normal full-time pay rate. If an employee earns $18 per hour and is paid $27 per hour for overtime, only the $9 added pay is deductible.
There is a limited exclusion of up to $12,500 ($25,000 for joint filers) for overtime income. The overtime exclusion applies to taxpayers with a modified adjusted gross income of $150,000 ($300,000 for a joint return). There is a 10% phaseout above those levels. The overtime benefit phases out for single taxpayers with income of $275,000 and for joint taxpayers with income over $425,000.
The overtime exclusion will be subject to Treasury Secretary regulations to define the methods for determining regular and overtime compensation. Generally, the definitions will follow Section 7 of the Fair Labor Standards Act of 1938. This law generally limits overtime to the amount of time over 40 hours per week. All overtime pay will still be subject to Social Security and Medicare taxes.
The overtime deduction will also be allowed in addition to the standard deduction. It is not necessary to itemize to qualify for the overtime deduction. There will be a reporting requirement for employers to designate the amount of overtime. This information will also be reported to the IRS.
Editor’s Note: Because most employees qualify for the overtime deduction, there may be attempts to structure compensation plans to maximize overtime. The Treasury Secretary is likely to be quite specific in listing the qualified overtime rules to limit potential improper use of this deduction.
More
Friday June 5, 2026
Washington News
No Tax on Overtime
In the recent Presidential election, both candidates supported the concept of removing taxes on overtime. The One Big Beautiful Bill Act signed on July 4, 2025, created an overtime exclusion of up to $12,500 for years 2025 to 2028. The overtime pay must be in excess of the normal full-time pay rate. If an employee earns $18 per hour and is paid $27 per hour for overtime, only the $9 added pay is deductible.
There is a limited exclusion of up to $12,500 ($25,000 for joint filers) for overtime income. The overtime exclusion applies to taxpayers with a modified adjusted gross income of $150,000 ($300,000 for a joint return). There is a 10% phaseout above those levels. The overtime benefit phases out for single taxpayers with income of $275,000 and for joint taxpayers with income over $425,000.
The overtime exclusion will be subject to Treasury Secretary regulations to define the methods for determining regular and overtime compensation. Generally, the definitions will follow Section 7 of the Fair Labor Standards Act of 1938. This law generally limits overtime to the amount of time over 40 hours per week. All overtime pay will still be subject to Social Security and Medicare taxes.
The overtime deduction will also be allowed in addition to the standard deduction. It is not necessary to itemize to qualify for the overtime deduction. There will be a reporting requirement for employers to designate the amount of overtime. This information will also be reported to the IRS.
Editor’s Note: Because most employees qualify for the overtime deduction, there may be attempts to structure compensation plans to maximize overtime. The Treasury Secretary is likely to be quite specific in listing the qualified overtime rules to limit potential improper use of this deduction.
Previous Articles
National Taxpayer Advocate Calls the Tax Season a Measured Success
