The IRS has issued new guidance outlining how workers can claim the overtime pay deduction introduced under the One Big Beautiful Bill (OBBBA) for tax year 2025. This provision—one of the more worker-focused components of the new law—offers a significant benefit to hourly employees and certain retirees with part-time income.
For CPAs and tax advisors, this deduction introduces new planning opportunities—and payroll reporting complexities—for the year ahead.
Tax advisors working with small business owners should verify that payroll providers are updating software to properly categorize and report overtime wages for 2025 W-2 forms.
Clients with part-time or hourly jobs—especially those nearing retirement—stand to benefit most. Advisors should start tracking eligible earnings early in the year to maximize deductions come filing season.
Unlike many above-the-line deductions, the overtime deduction can be taken in addition to the standard deduction, increasing its value across income levels.
This deduction offers a rare tax planning opportunity built around earned effort, not asset ownership. For hourly workers and seniors alike, the overtime provision could lead to real, measurable tax savings if properly tracked, reported, and claimed.
Bizora AI will soon auto-detect overtime-eligible earnings from client data and flag deduction opportunities as part of its 2025 strategy engine.