Millions of Americans have already claimed the new overtime tax break enacted under the recent federal tax law, but tax experts warn errors are likely this filing season. With employer reporting relaxed for 2025, workers may have to piece together pay records to figure the correct amount — and a simple math mistake could cost a refund or trigger an audit.
The provision, available for tax years 2025 through 2028, lets eligible taxpayers deduct up to $12,500 for single filers and up to $25,000 for married couples filing jointly for certain overtime pay. The deduction is reported on a new form, Schedule 1-A, which many returns already include this year.
Who this affects
Not everyone who receives extra pay qualifies. The deduction applies only to compensation that meets the criteria of the Fair Labor Standards Act — generally nonexempt workers who earn time-and-a-half for hours beyond 40 in a week. Workers covered by some state rules or union contracts may be excluded.
Recent analyses estimate roughly 98 million workers are potentially eligible under the FLSA, but regular overtime is uncommon. Only about 8% of hourly employees and 4% of salaried workers report FLSA-style overtime on a routine basis, concentrated in industries such as manufacturing, health care, transportation and public safety.
Why mistakes are more likely this year
Two factors are driving confusion: the IRS created the new Schedule 1-A to handle multiple novel deductions, and the Treasury waived employer reporting requirements for overtime pay for tax year 2025. That means many workers won’t see overtime amounts prefilled on information returns like Forms W-2 or 1099.
Without employer-provided figures, filers must often rely on pay stubs or year-end payroll summaries to calculate the deductible portion. Tax professionals say this is where errors can creep in.
Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals, cautioned that taxpayers may overstate the benefit if they don’t isolate the correct portion of overtime pay.
How to calculate the deductible portion
The law allows a deduction only for the overtime “premium” — the extra pay beyond a worker’s regular rate. For typical 1.5x overtime, the premium equals one-half of the overtime pay.
- If your overtime was paid at 1.5 times your regular rate, divide that overtime amount by 3 to estimate the premium portion.
- If you received double-time (2x) pay, divide the overtime amount by 4 to find the premium.
- Keep payroll stubs, year-end summaries or final pay statements that show hours and rates — those documents are the primary evidence if the IRS asks.
Example: if you earned $150 in overtime at a 1.5x rate, the deductible premium would be $50.
Practical steps for filers
Given the reporting gap, tax professionals recommend conservative, well-documented claims. Some workers might choose to skip the deduction if their overtime is small and records are unclear; others may prefer to consult a preparer.
- Gather pay stubs and year-end payroll reports before completing Schedule 1-A.
- Calculate only the premium portion of overtime, not the total overtime pay.
- If employer records aren’t available, ask payroll for a statement or use the final pay stub for the year.
- When in doubt, seek advice from a qualified tax professional — honest mistakes happen, and a conservative approach reduces audit risk.
As of early March, the IRS had processed nearly 56 million returns and an agency official said about 43% included the new Schedule 1-A — with the overtime deduction being the most common item claimed on that form. Policy analysts and tax preparers say the combination of a high filing volume and limited employer reporting makes this an unusual season for overtime-related issues.
Watch for follow-up guidance from the IRS and Treasury. In the meantime, preserve payroll records, calculate the overtime premium carefully, and document your method — actions that matter if your return is reviewed.
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