Overtime and Your Taxes: The New Deduction Explained
Updated: Oct 26
Overtime is part of the job for a lot of nurses, and travelers often pick up extra shifts on top of a full schedule. A federal tax law signed on July 4, 2025 created a new deduction for qualified overtime pay. On January 23, the Treasury and the IRS issued answers to common questions about it, and filing season opened on January 26. Here is how the deduction works, in plain terms.
The basics
You can deduct up to $12,500 of qualified overtime, or up to $25,000 on a joint return.
The deduction phases out above $150,000 of modified adjusted gross income, or $300,000 for joint filers.
It applies to tax years 2025 through 2028.
You can take it whether or not you itemize.
What counts as qualified overtime
This is the part that surprises people. Only the premium portion of your overtime pay counts. That is generally the "half" in time-and-a-half, not the whole overtime paycheck.
A simple example: say your base rate is $40 an hour and overtime is paid at time-and-a-half, or $60 an hour. The extra $20 an hour is the premium. If you worked 100 overtime hours, your overtime pay was $6,000, but the qualified amount would generally be $2,000.
Figuring it for 2025
For 2025, employers did not have to report overtime separately. That means many workers will figure the qualified amount themselves. The IRS released guidance on how to do that on November 21, 2025, in Notice 2025-69.
If you worked for more than one employer or agency in 2025, you may have more than one set of pay records to look through. Gathering them early makes the rest of the process easier.
The new deductions are claimed on Schedule 1-A, and returns are due April 15, 2026.
The short version
Up to $12,500 of qualified overtime can be deducted, $25,000 if married filing jointly.
Only the premium part of overtime pay counts.
It phases out above $150,000 of modified adjusted gross income ($300,000 joint).
It covers tax years 2025 through 2028, and you do not have to itemize.
It goes on Schedule 1-A, and returns are due April 15.
How this fits your stay
Long runs of extra shifts take a lot out of you. On a contract, the place you come home to can either help you recover or add to the strain. At ReNests, I rent furnished private rooms in Milwaukee to traveling healthcare professionals. Every bedroom has its own keypad lock, there is one adult per room, and you deal with a real, named host. A quiet room after a double is not a tax break, but it helps. You can find the listing on Furnished Finder.
This post explains the new rule; it is not tax advice. Check with a tax professional about how the overtime deduction applies to your own return.
Here if you need anything, Susan
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