Updated October 28, 2026. Quick answer: The overtime deduction lets you deduct up to $12,500 of qualified overtime compensation on your 2027 return, or $25,000 on a joint return, new section 225 of the Internal Revenue Code from Public Law 119-21 section 70202. It shrinks by $100 for every $1,000 your modified adjusted gross income is over $150,000 ($300,000 joint), and no deduction is allowed for tax years beginning after 2028. The dollar amounts are fixed in the statute, so they are the same for 2027 as for 2026.
More on the 2026 tax figures: the 2026 overtime deduction.
The 2027 amounts
| Piece | Amount | Where it is written |
|---|---|---|
| Maximum deduction | $12,500 single, $25,000 joint | Section 225(b)(1) |
| Phase-out starts above modified adjusted gross income of | $150,000 single, $300,000 joint | Section 225(b)(2)(A) |
| Reduction | $100 for each $1,000 over the start | Section 225(b)(2)(A) |
| Last tax year | Taxable years beginning before January 1, 2029 | Section 225(g) |
The deduction is written as “an amount equal to the qualified overtime compensation received during the taxable year and included on statements furnished to the individual pursuant to section 6041(d)(4) or 6051(a)(19)”, with the cap “shall not exceed $12,500 ($25,000 in the case of a joint return)”. The amounts below are written into the statute itself, so there is no 2027 Revenue Procedure to wait for.
How the phase-out works
The statute reduces the deduction “by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).” The income measure is the same one used for tips: adjusted gross income plus amounts excluded under sections 911, 931 or 933.
Worked example, with invented amounts: a joint return with $320,000 of modified adjusted gross income and at least $25,000 of qualified overtime is $20,000 over the start (computed). That is twenty steps of $1,000, so the reduction is $2,000 (computed) and the deduction is $23,000 (computed).
What counts as qualified overtime
The term means “overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed”. The wording reaches the pay above the regular rate, not the whole overtime paycheck, and a qualified tip cannot be counted twice: “Such term shall not include any qualified tip (as defined in section 224(d)).”
Rules that can remove the deduction
The return must carry a Social Security number, and a married taxpayer must file jointly: “this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year”. The last year is fixed too: “No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.” It applies to “taxable years beginning after December 31, 2024”, which includes 2027.
Where the number comes from on your forms
Employers have to report the figure separately. The Act adds to the W-2 requirement “the total amount of qualified overtime compensation (as defined in section 225(c))” and to the 1099 payee statement “the portion of payments that are qualified overtime compensation (as defined in section 225(c))”.
Common mistakes
- Deducting the full overtime paycheck. The statute counts the amount above the regular rate that the Fair Labor Standards Act requires.
- Using the $12,500 cap on a joint return. A joint return gets $25,000.
- Counting a tip as overtime as well. A qualified tip is excluded from qualified overtime compensation.
- Forgetting the end date. No deduction is allowed for tax years beginning after December 31, 2028.
Related: the qualified overtime from more than one employer worksheet, Form 1099-MISC boxes 13a to 14, Form 1040 line 1a wages, and the 2027 tax numbers.
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Answer againSources
- Public Law 119-21 (One Big Beautiful Bill Act), July 4, 2025, enacted text (U.S. Government Publishing Office): www.govinfo.gov
- Related official page (not quoted): IRS Fact Sheet FS-2025-03, Working Families Tax Cuts: tax deductions for working Americans and seniors: www.irs.gov
Read from the primary documents linked above on October 28, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS itself is the right place to confirm anything consequential.