What is Overtime compensation?
Overtime compensation is the additional payment employees receive for hours worked beyond the standard 40-hour work week, as mandated by the Fair Labor Standards Act. Under federal law, overtime must be paid at a rate of at least time-and-a-half (1.5 times the regular hourly rate) for all hours worked over 40 in a single work week. The One Big Beautiful Bill Act introduced a revolutionary provision allowing workers to deduct up to $12,500 annually of the premium portion (the "half" in time-and-a-half) from their taxable income, creating substantial tax savings for overtime workers. This deduction phases out for individual filers with incomes exceeding $150,000 and joint filers with incomes exceeding $300,000. Proper documentation through Form W-2 reporting is essential for claiming this valuable deduction while coordinating with Traditional 401k contributions and other tax strategies for comprehensive financial planning.
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