How do I actually claim the no-tax-on-overtime deduction on my 2025 tax return? Do I need a new form?

Yes — to claim the new no-tax-on-overtime deduction for tax year 2025, you use a brand-new IRS form: Schedule 1-A. Here's what you need to know.

What the deduction is:

The One Big Beautiful Bill Act (OBBBA), enacted in 2025, created a deduction for qualified overtime pay received in tax years 2025 through 2028. You can deduct:

• Up to $12,500 if you file single, head of household, or married filing separately
• Up to $25,000 if you file married filing jointly

However, this is a deduction — not a full tax exemption. Your overtime is still subject to FICA (Social Security and Medicare) taxes, and the W-2 withholding tables were not changed for 2025, so your employer continued withholding federal income tax on overtime all year. You recover that overpayment when you claim the deduction at filing.

What qualifies:

You must be an hourly W-2 employee who received FLSA-required overtime (1.5x your regular rate for hours over 40/week). Salaried employees, freelancers, and contractors generally do not qualify. The overtime amount must be reported on your W-2.

Income phase-out:

The deduction phases out for higher earners. It begins phasing out at $150,000 MAGI (single) and $300,000 (married filing jointly), and is reduced by $0.50 for every dollar above those thresholds.

How to claim it — Step by Step:

• Identify your qualified overtime from your W-2 (your employer may show this in Box 12 with a new code, or you may need to calculate it from your pay stubs)
• Complete Schedule 1-A — the new IRS form created specifically for OBBBA deductions (overtime + tips)
• Report the deduction on Schedule 1, which flows to your Form 1040

Watch out:

Many 2025 W-2s may not clearly break out overtime. If your W-2 doesn't separate it, you'll need records from your employer or pay stubs to calculate the qualifying amount. The IRS may provide additional guidance before the October 2026 extended filing deadline.