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Millions of taxpayers have already filed to claim President Donald Trump’s new “no tax on overtime” deduction. But some filers could risk errors on their tax return, experts say.
Enacted via Trump’s “big beautiful bill,” the overtime tax break allows certain workers to deduct up to $12,500 for single filers or $25,000 for married couples filing jointly per year from 2025 through 2028.
The deduction goes on a new form, known as Schedule 1-A, which feeds into individual tax returns. That schedule also includes Trump’s new tax breaks for tip income, seniors and auto loan interest.
As of March 4, the IRS received almost 56 million returns, and 43% included Schedule 1-A, Frank Bisignano, Social Security Administration Commissioner and IRS CEO, said this week during a House Ways and Means Committee hearing. The overtime deduction has been “the largest filing category” for that form, he said.
Trump’s overtime deduction only applies to a specific type of earnings, according to the IRS.
You must have compensation covered under the Fair Labor Standards Act, or FLSA. The law says non-exempt employees must receive at least 1.5 times their normal pay rate once they exceed 40 hours per week. But some workers covered by state or labor contract mandates are excluded.
In 2023, roughly 98 million employed workers were eligible for overtime under the FLSA, according to a 2024 analysis from The Budget Lab at Yale. But only 8% of hourly workers and 4% of salaried workers have FLSA-qualified overtime on a regular basis.
Overtime pay is typically concentrated in sectors like manufacturing, health care, transportation and public safety, according to a Feb. 10 report from the Cato Institute, a libertarian think tank.
Why your overtime deduction could be wrong
This filing season, it may not be clear to workers how much to claim for the overtime deduction, experts say.
The U.S. Department of the Treasury and IRS in November waived reporting requirements for employers for tax year 2025. That means some workers won’t see overtime listed on so-called information returns, such as Forms W-2 or 1099.
Instead, some workers may need payroll statements or their final pay stub from 2025 to calculate overtime totals. But the deduction is only for the “overtime premium,” which is the one-half portion if overtime is 1.5 times the normal rate.
I think there could be a great deal of overstatement of that deduction.
Tom O’Saben
Director of tax content and government relations at the National Association of Tax Professionals
“I think there could be a great deal of overstatement of that deduction,” Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals, told CNBC.
If you’re seeing a lump sum on a payroll statement, you calculate the overtime premium by dividing it by 3 for 1.5 times your regular pay, or dividing by 4 for 2 times your regular pay, according to the IRS.
There’s no evidence that filers are overclaiming the overtime deduction, “but it’s definitely a theoretical concern of mine,” said Andrew Lautz, director of tax policy for the Bipartisan Policy Center, a nonprofit think tank. “People just make honest mistakes,” he said.
Alternatively, if tax forms don’t show the overtime pay, certain filers could “take a gamble” by inflating their earnings, while others with smaller overtime amounts could skip the deduction to avoid issues, Lautz said.
“Those are all possibilities, given the employer reporting structure is not in place,” he said.