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In the event you earned extra time pay in 2025, you could possibly see a larger refund through the 2026 submitting season based mostly on a new tax break enacted through President Donald Trump‘s “large stunning invoice.”
However lacking particulars on tax types, akin to in your W-2 from an employer, may very well be complicated when submitting returns this 12 months, specialists say.
The “no tax on extra time” deduction permits sure staff to deduct as much as $12,500 for single filers or $25,000 for married {couples} submitting collectively per 12 months from 2025 via 2028. The tax break begins to part out, or get smaller, when earnings exceed $150,000 for single filers or $300,000 for joint filers.
For 2025, your employer is not required to separate extra time from common pay on Kinds W-2, 1099-NEC or 1099-MISC. Which means you will have to calculate certified extra time by yourself through the 2026 season.
“Treasury gave employers a 12 months off [from reporting],” stated licensed monetary planner Micha Siegel, founding father of TaxCentric, an advisory agency in Honest Garden, New Jersey. “However that makes it actually laborious for taxpayers.”
Consequently, many staff should use pay stubs to determine their extra time deduction for 2025, stated Siegel, who can be an authorized public accountant.
Who qualifies for ‘no tax on extra time’ deduction
The “no tax on extra time” deduction applies to non-exempt staff with earnings lined beneath the Honest Labor Requirements Act, or FLSA. The regulation typically consists of staff who should obtain at the very least 1.5 instances their regular pay fee as soon as they exceed 40 hours per week.
Nevertheless, this definition excludes some staff lined by state or labor contract mandates, in accordance with the IRS.
You possibly can solely deduct the portion of extra time pay that exceeds your common fee. For instance, in case your extra time fee is 1.5 instances your regular fee, you’ll be able to deduct the one-half portion as much as the yearly limits.
calculate the ‘no tax on extra time’ deduction
This season, it may very well be tough to determine your 2025 extra time deduction with out particulars individually reported in your tax types, specialists say.
Some employers will report the quantity in field 14 of your W-2, “however solely the great ones,” stated Siegel from TaxCentric.
If the determine is not proven in your W-2, you will want to search out extra time totals through firm payroll software program or in your pay stubs. That ought to present a place to begin to calculate the deduction.
In some instances, you could possibly see the “extra time premium” separated from common compensation on pay stubs or in payroll software program.
Different employers might solely report a year-end lump sum, which requires some math, relying in your extra time fee, in accordance with the IRS. Here is the calculation:
- for 1.5 instances common pay, divide the lump sum by 3
- for two.0 instances common pay, divide the lump sum by 4
“Beginning with that year-end pay stub can be actually, actually useful,” stated Tom O’Saben, director of tax content material and authorities relations on the Nationwide Affiliation of Tax Professionals.
No matter your extra time deduction, it is vital to avoid wasting paperwork to assist the tax break in your return, simply in case the IRS has questions later, O’Saben stated.