"No Tax on Overtime" Deduction 2026: What CPAs Need to Tell Every Client Right Now

Your client earned overtime in 2025. They heard the news — Trump's "no tax on overtime" deduction. They think it's simple.

It's not.

Here's what CPAs need to know to keep clients from making costly mistakes on their 2025 returns.

What the "No Tax on Overtime" Deduction Actually Is

The deduction comes from Trump's "One Big Beautiful Bill" that passed in summer 2025. It allows qualifying workers to deduct up to $12,500 (single filers) or $25,000 (married filing jointly) per year for overtime pay earned between 2025 and 2028.

This is an above-the-line deduction — you don't need to itemize to take it. That's significant. Most of your hourly wage clients don't itemize.

It phases out for higher earners:

• Single filers: phase-out starts at $150,000

• Joint filers: phase-out starts at $300,000

The Catch Nobody Is Talking About

Here's where it gets messy.

The IRS gave employers a pass for 2025 — they're not required to break out overtime from regular wages separately on W-2s, 1099-NECs, or 1099-MISCs.

Translation: most of your clients' W-2s won't show the information they need to claim this deduction.

Certified financial planner and CPA Micha Siegel of TaxCentric put it bluntly: "Treasury gave employers a year off. But that makes it really hard for taxpayers."

The result? Every client who worked overtime in 2025 is going to need to dig up their pay stubs to calculate the deduction manually. This isn't self-preparing friendly. This is a CPA's billable hour opportunity — and also a potential error landmine.

Who Actually Qualifies

Not every overtime worker qualifies. The deduction applies only to FLSA non-exempt workers — people required under the Fair Labor Standards Act to receive at least 1.5x their regular rate for hours over 40 per week.

This excludes:

• Salaried exempt employees (most managers, many professionals)

• Workers covered only by state law or certain labor contracts (not federal FLSA)

• High earners above the phase-out threshold

How to Actually Calculate It

Here's the math your clients are going to get wrong.

If a worker earns 1.5x their regular rate for overtime, they can only deduct the 0.5x portion — the premium above their regular rate. The base pay portion is still taxable.

Example: Worker earns $30/hour regular, $45/hour overtime. Worked 100 overtime hours in 2025.

• Total overtime pay: $4,500

• Deductible portion: Only $1,500 (the extra 0.5x, or $15/hour × 100 hours)

• Not the full $4,500

This is counterintuitive. Many clients will assume their entire overtime paycheck is tax-free. It's not — only the "extra" part qualifies.

What CPAs Should Do Right Now

1. Alert clients now — before they self-file and get it wrong. A quick email blast about the W-2 issue could prevent a wave of amended returns. 2. Add pay stubs to your document intake checklist — this is now required for any client who worked overtime in 2025. 3. Verify FLSA status — don't assume. A client who thinks they qualify might not. 4. Document your calculation methodology — this deduction is new, it's significant, and it's going to get scrutiny from the IRS. Keep records on file.

The Bottom Line

The "no tax on overtime" deduction is a real win for qualifying workers — potentially worth thousands in tax savings. But the IRS's decision to let employers skip W-2 reporting in year one created a documentation mess that's going to land on your desk.

The clients who benefit most from this deduction are exactly the ones least likely to navigate it correctly on their own. That's what CPAs are for.