The Short Version
Qualified overtime is claimed in Part III of Schedule 1-A, which you attach to Form 1040, 1040-SR, or 1040-NR. It is an above-the-line deduction, so you get it whether you itemize or take the standard deduction. You need a Social Security number valid for employment, and if you are married you must file jointly.
What Schedule 1-A Is
The OBBBA created four new deductions at once. Rather than scatter them across the return, the IRS built a single new form — Schedule 1-A, Additional Deductions — to collect all four in one place and produce a combined total that flows to your 1040.
The parts you care about here:
- Part II — qualified tips.
- Part III — qualified overtime compensation.
If you earned both, complete both parts. They are separate deductions with separate caps, and they stack.
The Three Eligibility Gates
Before the math matters, three requirements have to be satisfied. Miss any one and the deduction is unavailable regardless of how much overtime you worked.
- A Social Security number valid for employment. The person who earned the overtime must have one. An ITIN does not qualify.
- Joint filing if married. Married filing separately blocks the deduction entirely. This catches people out — a couple who normally file separately for other reasons will lose it.
- The overtime must be FLSA-required. Not merely "extra hours." This is the gate that disqualifies the most people, and it is covered in detail in which overtime actually qualifies.
Where Your Number Comes From
Which source you use depends on the tax year:
- Tax year 2026 and later. Take the figure from Box 12, code TT on your W-2 (or the equivalent box on a 1099-NEC or 1099-MISC). See W-2 Box 12 code TT for how to read it.
- Tax year 2025. Employers were not required to report it separately, so if nothing was provided you calculate it yourself using the methods in Notice 2025-69 and the Schedule 1-A instructions. For standard time-and-a-half, that means dividing total overtime pay by three.
Keep your documentation either way — paystubs, a year-end earnings statement, or a calculation worksheet. The self-reported route for 2025 puts the burden of substantiation on you.
The Cap and the Phase-Out
Two limits apply in sequence. First the cap:
- $12,500 — single, head of household, and other non-joint filers.
- $25,000 — married filing jointly.
Because the premium is one third of time-and-a-half earnings, hitting the single-filer cap takes roughly $37,500 of total overtime pay in a year. Most workers never reach it.
Then the phase-out, which is based on modified adjusted gross income. The cap is reduced by $100 for every $1,000 of MAGI above $150,000 (single) or $300,000 (married filing jointly). Work that through and the deduction disappears entirely at $275,000 and $550,000 respectively.
A worked case. Single filer, $180,000 MAGI, $9,000 of overtime pay:
- Premium: $9,000 ÷ 3 = $3,000.
- MAGI excess: $180,000 − $150,000 = $30,000, so the cap drops by 30 × $100 = $3,000, from $12,500 to $9,500.
- The $3,000 premium is below the reduced $9,500 cap, so the full $3,000 is deductible.
Note what happened there: the phase-out reduces the cap, not your premium. A high earner with modest overtime is often unaffected, while a high earner with heavy overtime loses part of it. The no tax on overtime calculator applies both limits in the right order and shows which one bound your result.
What It Is Worth
A deduction is not a credit. It reduces taxable income, so the cash value is the deduction multiplied by your marginal rate — a $3,000 deduction is worth about $660 in the 22% bracket, not $3,000.
It also does nothing for FICA. Social Security and Medicare were withheld on your overtime and stay withheld. Most states that tax income will continue to tax overtime in full unless they conform to the federal treatment, so check your own state before you assume the saving is larger than it is.