Starting in Tax Year 2025, workers can earn overtime tax-free, up to certain limits.
This benefit is designed to help working families keep more of the money they earn, especially those taking on extra hours, weekend shifts, or holiday work.
Starting in Tax Year 2025, workers can earn overtime tax-free, up to certain limits.
This benefit is designed to help working families keep more of the money they earn, especially those taking on extra hours, weekend shifts, or holiday work.
How It Works
Overtime pay you earn can be excluded from federal income tax:
Filing Single:
Up to $12,500 of overtime is not taxed
Married Filing Jointly
Up to $25,000 of overtime is not taxed
This means the overtime portion of your paycheck does not count toward your taxable income — up to the allowed limit.
Income Limits
Overtime pay you earn can be excluded from federal income tax:
Filing Single:
$150,000 Modified Adjusted Gross Income (MAGI)**
Married Filing Jointly
$300,000 MAGI
What this means for you
- If you are 65+, this law could reduce or eliminate federal income tax owed on Social Security benefits particularly if you have moderate income and qualify for the deduction.
- It’s still important to assess total income (pensions, part time work, investment income, etc.) since the deduction phases out above certain income thresholds.
- While it’s good news for many seniors, it doesn’t change eligibility age, benefit formula, or underlying Social Security benefits, so retirement planning should still take those into account.
***Important***
Save your last paycheck stub of the year and bring it to your tax appointment.
Put it in your wallet. Take a picture of it. Email it to yourself — just don’t lose it or throw it away.
