The New Overtime Deduction and Senior Deduction: How They Work and Who Qualifies 

Starting in 2025, two new deductions will be available to many taxpayers—the Overtime Deduction and the Senior Deduction. Both are designed to give certain workers and retirees a little extra tax relief, but they come with specific rules about who can claim them, how much they’re worth, and how they’re calculated. 

Let’s walk through each one, step-by-step. 

The Overtime Deduction 

What it is 

If you’re paid overtime, you can now deduct the overtime premium—that’s the “extra half” in time-and-a-half. For example, if you earn $20/hour, overtime at $30/hour includes a $10/hour premium above your regular rate. That $10 premium is the part that qualifies for the deduction. 

Quick Tip: The deduction applies to overtime that’s legally required under federal law (FLSA rules). If you’re exempt from overtime rules or your employer pays a bonus/overtime rate not required by law, that amount may not qualify. 

How much you can deduct 

• Up to $12,500 per person, or $25,000 if married filing jointly.
• Starts phasing out when modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 for joint filers). For every $1,000 over that limit, the deduction is reduced by $100. 

When it applies 

Tax years 2025 through 2028. 

Filing requirements 

• Employers will need to report qualified overtime separately on the W-2 (2025 has a transition period while payroll systems update).
• You must have a valid SSN.
• If married, you generally must file jointly to claim it. 

Note on AGI: This deduction reduces taxable income but does not reduce AGI. That means it won’t affect AGI-based thresholds for other deductions or credits. It also won’t reduce Social Security or Medicare taxes. 

Example 

Maria makes $30/hour and works 20 overtime hours in 2025 at $45/hour. Her overtime premium is $15/hour ($45-$30). She can deduct $300 (20 x $15), assuming she’s under the income cap. 

The Senior Deduction 

What it is 

If you’re 65 or older by the end of the tax year, you can deduct an extra $6,000. If both spouses on a joint return are 65+, that’s $12,000. 

When it applies 

Tax years 2025 through 2028. 

Phase-out rules 

The deduction starts shrinking if your MAGI is over $75,000 ($150,000 for joint filers).  

Filing requirements 

• You (and your spouse, if applicable) must have a valid SSN.
• Married couples generally must file jointly to claim it. 

Note on AGI: Like the Overtime Deduction, the Senior Deduction reduces taxable income but not AGI. It won’t change the way other AGI-based items are calculated, like the taxation of Social Security benefits. 

Key Points to Remember 

• Both deductions are “stand-alone.” They are not part of the standard or itemized deductions.
• They don’t reduce AGI—important for planning if you’re near other tax credit or deduction thresholds.
• For the Senior Deduction, check your MAGI to estimate whether the phase-out will apply.
• Joint filing rules apply for married taxpayers, with limited exceptions.
• For the Overtime Deduction, make sure your payroll records clearly show the qualifying overtime premium.