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Fact check: What part of overtime will be deductible at the end of the year?
1. Summary of the results
The analyses provided suggest that qualified overtime compensation may be deductible at the end of the year, with a maximum annual deduction of $12,500 for single filers and $25,000 for joint filers [1] [2] [3] [4]. According to the sources, only the pay that exceeds the regular rate of pay is considered qualified overtime compensation, such as the 'half' portion of 'time-and-a-half' compensation [3] [2] [5]. The deduction is temporary, applying to tax years 2025-2028 [4] [2]. The new tax deduction is part of the One Big Beautiful Bill Act, which aims to provide tax breaks for working Americans and seniors [2] [6].
2. Missing context/alternative viewpoints
A key point to consider is that the deduction phases out for taxpayers with modified adjusted gross income over $150,000 ($300,000 for joint filers) [2]. Additionally, only the earnings in excess of one's standard hourly wage will be tax-free [5]. The sources also highlight the potential impact on the restaurant industry and employers [6]. Furthermore, it is essential to note that the extra half of time-and-a-half overtime pay constitutes qualified overtime income [3]. The sources emphasize the importance of understanding the specific rules and regulations surrounding the deduction to maximize its benefits [1] [3] [4].
3. Potential misinformation/bias in the original statement
The original statement lacks specific details about the type of overtime compensation that is deductible and the income limits that apply to the deduction [1] [2]. The sources suggest that not all overtime pay will be tax-free, and only the excess amount will be eligible for the deduction [5]. The framing of the original statement may benefit individuals who receive qualified overtime compensation, as it highlights the potential tax benefits without providing the full context [1] [3]. On the other hand, employers, particularly in the restaurant industry, may need to reassess their compensation structures and tax strategies in light of the new deduction [6]. The sources provided by the IRS and other reputable organizations aim to inform and educate taxpayers about the new tax laws and their implications [1] [2].