If you happen to’ve ever labored late nights, weekends, or double shifts, you’re doubtless very accustomed to additional time pay. However the advantages simply received higher — as of 2025, there’s a brand new tax break designed particularly for individuals who work additional time. A provision within the One Large Lovely Invoice, known as the no tax on additional time deduction, may put a number of the cash you constructed from additional time hours again in your pocket this tax season.
Whether or not you’re hustling late-night shifts, working weekends, or clocking additional hours to make ends meet, right here’s the whole lot you have to know in regards to the new additional time deduction and the way TaxAct® will help you declare it in your tax return this yr.
Did the no tax on additional time cross?
Sure. The no tax on additional time invoice was included within the One Large Lovely Invoice that President Trump signed into regulation in July 2025. This new regulation creates a first-of-its-kind tax exemption for sure additional time pay, efficient starting in tax yr 2025.
Though no tax on additional time handed, we’re nonetheless awaiting the IRS to offer closing laws that finalize some particulars, corresponding to steerage on how employers ought to report additional time and whether or not contractors qualify for the deduction. We’ll replace this web page with new data because it turns into accessible.
When does no tax on additional time begin?
The no tax on additional time deduction begins with the 2025 tax yr. Which means you’ll first declare it once you file your tax return in early 2026. Nonetheless, the availability isn’t everlasting. Underneath the present regulation, this new deduction is scheduled to stay in place via the tip of 2028 except Congress decides to increase or modify it.
How does no tax on additional time work?
Right here’s what you have to know in regards to the One Large Lovely Invoice no tax on additional time deduction:
| No tax on additional time rule | What it means | Instance |
|---|---|---|
| Deduction quantity | You’ll be able to deduct as much as $12,500 of certified additional time compensation per yr ($25,000 if submitting a joint return). | A single filer who earns $8,000 in certified additional time can deduct the complete $8,000 because it’s below the $12,500 cap. |
| Sort of deduction | Above the road, which means you don’t must itemize to say it. It lowers your adjusted gross revenue (AGI) instantly. | In case your AGI is $60,000, and also you deduct $5,000 of additional time, your AGI turns into $55,000. |
| SSN requirement | It’s essential to have a legitimate Social Safety quantity to say the deduction. | If you happen to don’t have an SSN, you can’t declare the deduction (even for those who labored additional time). |
| Submitting standing | Married submitting individually taxpayers should not eligible. | A married taxpayer with $10,000 of additional time who recordsdata individually from their partner can’t declare this deduction. |
| Revenue restrict (MAGI) | Deduction begins to section out for these with a modified adjusted gross revenue (MAGI) above $150,000 ($300,000 for joint filers). | A pair with MAGI of $200,000 will be capable of declare the complete deduction as a result of they’re below the joint restrict. |
| Phaseout | For each $1,000 over the MAGI restrict, the deduction is lowered by $100. | A single filer with a MAGI of $155,000 can declare a max deduction of $12,000 since they’re $5,000 over the restrict. |
| Time-and-a-half portion solely | Solely the “additional” half above your base fee qualifies. | In case your regular fee is $20 per hour and also you’re paid $30 per hour for additional time, solely the $10 per hour additional pay is deductible. |
| Ideas throughout additional time | Ideas earned throughout additional time hours do not qualify. (As a substitute, you could qualify for the no tax on suggestions deduction.) | If you happen to made $50 in suggestions whereas working additional time, these suggestions must be deducted below the no tax on suggestions deduction moderately than included in your additional time pay. |
Who qualifies for no tax on additional time deduction?
The deduction applies to most taxpayers who obtain additional time wages below the Truthful Labor Requirements Act (FLSA). Which means:
- Hourly and different non-exempt staff are eligible for this profit.
- Exempt salaried staff typically don’t qualify for this deduction, since they don’t obtain additional time below FLSA guidelines. Non-exempt salaried staff can nonetheless qualify, since they’re entitled to additional time protections.
- It’s essential to have additional time earnings paid at a better fee than your common wages.
- A legitimate Social Safety quantity is required.
- It’s nonetheless unclear whether or not self-employed staff like unbiased contractors will qualify — as of proper now, you’ll nonetheless report enterprise revenue and bills usually on Schedule C.
How a lot additional time pay may be deducted?
You’ll be able to declare as much as $12,500 of qualifying additional time pay on a single return, or as much as $25,000 for those who’re submitting collectively along with your partner.
Keep in mind, this is applicable solely to the “additional” portion of your additional time compensation (the half-pay above your base fee). If you happen to earn straight-time bonuses, suggestions, or hazard pay, these don’t qualify for the additional time deduction.
2025 protected harbor rule
There’s additionally a one-year protected harbor rule (only for 2025) that lets employers common your additional time hours from the second half of the yr (July to December) to determine your deduction. This rule is supposed to ease the transition into the brand new additional time tax regulation, which was not handed till midway via the 2025 tax yr.
Reporting necessities for additional time pay
Employers should begin individually reporting additional time wages on Type W-2 and different IRS tax statements. In 2025, employers are anticipated to make use of a short lived reporting methodology since Type W-2 received’t but have a devoted field for additional time pay. Most will doubtless embrace certified additional time compensation in Field 14 (Different) or presumably present a separate assertion displaying your certified additional time compensation.
Beginning in 2026, the IRS plans so as to add a particular field to Type W-2 for additional time wages to make the method extra constant.
Instance: The best way to calculate the additional time deduction
Let’s say Maria is a non-exempt full-time worker who earns $20 per hour. In 2025, she works an additional 10 hours of additional time every week at time and a half, which suggests she earns $30 per hour for these additional time hours.
Right here’s how she would calculate her additional time deduction:
- Her common pay stays at $20 per hour.
- Her additional time fee is $30 per hour, however solely the additional $10 per hour (the half above her base fee) counts towards the deduction.
- Over 10 additional time hours, that’s $100 in deductible additional time per week.
- If she works additional time each week of the yr, her deductible additional time totals $5,200 (52 weeks × $100).
Maria can declare that $5,200 as an above-the-line deduction on her 2025 tax return, decreasing her adjusted gross revenue. If her partner additionally qualifies and so they file collectively, their mixed deduction could possibly be as excessive as $25,000, relying on the quantity of additional time they each labored.
The best way to declare the no tax on additional time deduction with TaxAct
While you file your tax return for the 2025 tax yr, TaxAct will stroll you thru getting into your additional time compensation. As a result of employers should individually report additional time pay, you’ll merely enter your data from Type W-2, and our tax prep software program will apply the deduction routinely for those who qualify utilizing a brand new tax type known as Schedule 1A for Type 1040.
Mainly, you don’t want to fret about figuring it out by yourself — TaxAct will information you thru the reporting course of step-by-step.
FAQs in regards to the no tax on additional time deduction
The underside line
The no tax on additional time deduction is a serious new tax break for hundreds of thousands of working Individuals. By chopping federal taxes on additional hours, the brand new regulation means more cash in your pocket once you put in additional time.
If you happen to earn additional time wages, be sure to perceive the no tax on additional time revenue limits and know the way a lot of your additional time compensation qualifies. Come tax season, TaxAct will information you thru the steps to say this deduction and enable you to maintain extra of your hard-earned additional time pay.
This text is for informational functions solely and never authorized or monetary recommendation.
All TaxAct presents, services are topic to relevant phrases and situations.
