Overtime Deduction Phase-Out: Income Limits and Calculation
If your income exceeds certain thresholds, the overtime deduction is gradually reduced. This guide explains the MAGI limits, how the reduction is calculated, and how the overtime phase-out compares to the tips deduction phase-out.
Check your phase-out amount: Use the Overtime Calculator →
Income Thresholds
| Filing Status | Max Deduction | Phase-Out Begins | Fully Phased Out |
|---|---|---|---|
| Single | $12,500 | $150,000 | $275,000 |
| Head of Household | $12,500 | $150,000 | $275,000 |
| QSS | $12,500 | $150,000 | $275,000 |
| MFJ | $25,000 | $300,000 | $550,000 |
| MFS | Not eligible | ||
Step-by-Step Calculation
The overtime deduction phase-out follows the same formula as the tips phase-out:
- Start with your tentative deduction — the lesser of your qualified overtime premium or the annual cap ($12,500 / $25,000 MFJ).
- Calculate excess MAGI — MAGI minus the threshold for your filing status.
- Round up to whole thousands — Divide by 1,000 and round up (ceiling function). Even $1 over counts as one full thousand.
- Calculate the reduction — Multiply the rounded-up thousands by $100.
- Subtract from tentative deduction — Your final deduction cannot go below zero.
Worked Examples
Example 1: Single, MAGI $180,000, Premium $12,500
Tentative deduction: min($12,500, $12,500) = $12,500
Excess: $180,000 − $150,000 = $30,000
Excess thousands: ceil(30,000 / 1,000) = 30
Reduction: 30 × $100 = $3,000
Deduction: $12,500 − $3,000 = $9,500
Example 2: MFJ, MAGI $320,000, Premium $18,000
Tentative deduction: min($18,000, $25,000) = $18,000
Excess: $320,000 − $300,000 = $20,000
Excess thousands: ceil(20,000 / 1,000) = 20
Reduction: 20 × $100 = $2,000
Deduction: $18,000 − $2,000 = $16,000
Example 3: Single, MAGI $275,000, Premium $12,500 (fully phased out)
Excess: $275,000 − $150,000 = $125,000
Excess thousands: 125
Reduction: 125 × $100 = $12,500
Deduction: $12,500 − $12,500 = $0
Overtime vs. Tips Phase-Out Comparison
Both deductions use the same threshold and reduction rate, but the different maximum deduction amounts create different full phase-out points:
| Feature | Tips | Overtime |
|---|---|---|
| Max (Single) | $25,000 | $12,500 |
| Threshold (Single) | $150,000 | $150,000 |
| Rate | $100/1K | $100/1K |
| Full Phase-Out (Single) | $400,000 | $275,000 |
| Full Phase-Out (MFJ) | $550,000 | $550,000 |
The overtime deduction is fully eliminated at a lower income level for Single filers because the maximum deduction ($12,500) is smaller than the tips maximum ($25,000). For MFJ, the overtime max matches ($25,000), so the full phase-out point is the same.