New Overtime Compensation Deduction: How Workers Can Save Up to $12,500 Under H.R.1

One of the more practical additions in H.R.1 is the new Overtime Compensation Deduction, designed to give relief to workers who rely on overtime as a significant part of their earnings. Under the bill, eligible taxpayers can deduct up to $12,500 in qualifying overtime pay (or $25,000 for joint filers).

The deduction is tied specifically to overtime covered under Section 7 of the Fair Labor Standards Act—meaning it must be the legally required premium paid above the regular hourly rate. Voluntary bonuses or employer-defined incentives don’t count.

There is a built-in phaseout: once adjusted gross income exceeds $150,000 (or $300,000 for joint returns), the deduction slowly decreases. The phaseout is straightforward—$100 is reduced for every $1,000 above the threshold.

The deduction will remain available through the end of 2028, and importantly, it can be claimed even if the taxpayer does not itemize deductions. This is especially helpful for middle-income earners who typically rely on the standard deduction.

For many workers—especially those in healthcare, logistics, and service industries—this change could reduce taxable income in a meaningful way during the next few years.