Qualified Overtime Deduction for the 2025 Tax Year Guide

Under the One Big Beautiful Bill Act (OBBBA), Public Law 119-21, employees who work overtime may be eligible for a new federal income tax deduction for tax years 2025 through 2028. This deduction applies only to the "overtime premium"—typically the extra half-pay (0.5x) in time-and-a-half compensation—required by the Fair Labor Standards Act (FLSA).

With this law, employees eligible for the new overtime deduction will need to claim it when they file their 2025 federal tax return.  

• The deduction applies only to the overtime premium portion (the amount paid above an employee’s regular rate) that is required under federal Fair Labor Standards Act (FLSA) overtime provisions. Overtime required solely by state law, local ordinance, or University policy is not eligible.
• The deduction will not be applied automatically through payroll. Eligible employees must claim the deduction when filing their 2025 federal tax return.
• For 2025 tax reporting purposes, the University will use a reasonable method to identify and report the total amount of qualified overtime compensation needed to claim the deduction. Employees will be advised to retain all related documentation for their tax preparers.
• All overtime earnings remain fully subject to Medicare (FICA) taxes and Massachusetts state income tax.
• The benefit is not universal. Income thresholds and phase-out provisions apply, and higher-earning employees may receive a reduced or no tax benefit.
• For calendar year 2025 reporting, the qualified overtime compensation amount will be reported in Box 14 OBBBTT of the employee’s Form W-2.
• While Box 14 is not a new W-2 field, the University’s reporting of this specific information in Box 14 is new for FY25.

For calendar year 2026 and beyond, this information is expected to be reported in a different W-2 box, consistent with federal guidance.