Married file separate qualified for overtime exemption
Executive summary (2–3 sentences)
The federal “No Tax on Overtime” deduction created by the One Big Beautiful Bill requires married couples to file a joint return to claim the overtime exemption; married taxpayers who file separately are not eligible under the guidance and coverage of the law [1] [2]. The deduction is limited (generally $12,500 per individual or $25,000 for joint filers), phases out by income thresholds, and carries new employer reporting obligations and transition relief for initial years [3] [1] [4].
1. What the law says about married filing status and eligibility
Multiple official and tax-practice sources make the same plain point: the overtime deduction is conditioned on filing status and married couples must file jointly to claim it—married filing separately is ineligible under the IRS implementation and practitioner guidance [1] [2] [5]. The IRS summary and public guidance emphasize that taxpayers claiming the overtime deduction must include valid Social Security numbers and, if married, must file a joint return to qualify [6] [1].
2. How big the break is and who phases out first
Eligible workers can generally deduct up to $12,500 of qualified overtime compensation ($25,000 for married couples filing jointly), with the benefit shrinking as modified adjusted gross income (MAGI) rises and ending for higher earners—phaseout thresholds and limits are consistently reported in IRS materials and tax-industry summaries [3] [1] [2]. Several outlets show the deduction is reduced by specified MAGI bands (for example, phaseout beginning around $150,000 for single filers and $300,000 for joint filers), and ineligible once MAGI exceeds upper caps reported in guidance [2] [7].
3. Reporting, payroll taxes, and employer obligations
The deduction does not eliminate payroll taxes—overtime remains subject to Social Security and Medicare withholding—even when the portion is excluded from federal income tax under this provision [6] [2]. Employers must separately track and report qualified overtime compensation on information returns and furnish statements to employees; the IRS provided a transition period for enforcement in 2025 and draft W‑2 guidance (code “TT” or new box entries) for 2026 implementation, so employers and payroll systems have work to do [4] [1].
4. Practical consequence for couples who want separate returns
The practical effect is categorical in the current guidance: a married person who chooses or is required to file separately cannot claim the overtime exclusion; couples seeking the overtime tax benefit must file jointly, which may create tradeoffs if married filing separately is otherwise advantageous for state taxes, liability issues, or other credits [1] [8]. Tax preparers and academic tax guides warn that couples should compare total tax outcomes because the joint filing requirement for this deduction can interact with other limits, phaseouts, or non‑tax considerations such as legal separation or spousal liability concerns [7] [8].
5. Caveats, competing texts, and limits of available reporting
Certain legislative proposals and bill texts circulating earlier in the process contained different income thresholds or percentage limits, creating potential confusion if relying on draft bill language rather than final IRS guidance—some sources summarize alternate bill language that would have set different AGI caps or calculation rules [9]. The reporting reviewed here is consistent about the joint‑filing requirement and the basic $12,500/$25,000 caps and phaseouts [3] [1], but detailed computational rules, the final W‑2 reporting format and the full set of IRS instructions for claiming refunds or adjustments are subject to forthcoming guidance and could evolve; where the sources do not state a nuance, no contrary assertion is made.