This part lets a worker deduct overtime pay from taxable income. Only the extra above the normal rate counts. The deduction is capped at $12,500, or $25,000 on a joint return. It ends after tax year 2028.
The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70202 in the PDF
What the document says
“There shall be allowed as a deduction an amount equal to the qualified overtime compensation received during the taxable year and included on statements furnished to the individual pursuant to section 6041(d)(4) or 6051(a)(19).”
The section adds a new section 225 to part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1986, redesignating the previous section 225 as section 226. It allows a deduction equal to the qualified overtime compensation received in the taxable year and shown on statements furnished under section 6041(d)(4) or 6051(a)(19).
What the document actually says
“There shall be allowed as a deduction an amount equal to the qualified overtime compensation received during the taxable year and included on statements furnished to the individual pursuant to section 6041(d)(4) or 6051(a)(19).”
That sentence, in plain words
A worker may deduct overtime pay taken in that year. The pay must appear on a statement given to the worker.
What this is about
Two kinds of statement are named. One is the yearly wage form. A deduction lowers the income that is taxed.
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The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70202 in the PDF
What the document says
“The amount allowed as a deduction under this section for any taxable year shall not exceed $12,500 ($25,000 in the case of a joint return).”
The section caps the deduction at $12,500 for a taxable year, or $25,000 on a joint return.
What the document actually says
“The amount allowed as a deduction under this section for any taxable year shall not exceed $12,500 ($25,000 in the case of a joint return).”
That sentence, in plain words
The deduction may not top $12,500. On a joint return the cap is $25,000.
What this is about
Overtime above that gets no break. The cap does not grow with prices. It is fixed in the law.
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The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70202 in the PDF
What the document says
“shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).”
The section reduces the deduction, after the cap, but not below zero, by $100 for each $1,000 of modified adjusted gross income above $150,000, or $300,000 on a joint return. Modified adjusted gross income means adjusted gross income increased by any amount excluded under section 911, 931 or 933.
What the document actually says
“shall be reduced (but not below zero) by $100 for each $1,000 by which the taxpayer's modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).”
That sentence, in plain words
The deduction shrinks as income rises. It drops by $100 for each $1,000 over $150,000. On a joint return the line is $300,000. It never drops below zero.
What this is about
Income here counts some money earned abroad. The cut comes after the cap is applied. A high enough income wipes the break out.
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“the term `qualified overtime compensation' means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed.”
The section defines qualified overtime compensation as overtime pay required under section 7 of the Fair Labor Standards Act of 1938 that is above the regular rate at which the individual is employed, and excludes any qualified tip as defined in section 224(d).
What the document actually says
“the term `qualified overtime compensation' means overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed.”
That sentence, in plain words
The term covers overtime pay owed under a 1938 labor law. Only the part above the normal rate counts.
What this is about
So the base hourly pay is left out. Only the extra on top gets the break. Tips are ruled out here.
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The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70202 in the PDF
What the document says
“No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual's social security number.”
The section denies the deduction unless the taxpayer puts the individual's social security number on the return, with social security number taking the meaning given in section 24(h)(7). A married individual within the meaning of section 7703 may use the section only if the couple files a joint return. The Secretary must issue regulations or other guidance to carry out the section, including guidance to prevent abuse of the deduction.
What the document actually says
“No deduction shall be allowed under this section unless the taxpayer includes on the return of tax for the taxable year such individual's social security number.”
That sentence, in plain words
No break is given unless a number is on the return. That is the worker's own social security number. It must be there each year.
What this is about
A married worker must file with a spouse. Filing alone means no break. The Secretary must also write rules against abuse.
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The document says “shall not”Who acts: Secretary of the TreasuryHow: statuteSec. 70202 in the PDF
What the document says
“No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.”
The section ends the deduction for any taxable year beginning after December 31, 2028.
What the document actually says
“No deduction shall be allowed under this section for any taxable year beginning after December 31, 2028.”
That sentence, in plain words
No break is given for a tax year that begins after December 31, 2028.
What this is about
So the deduction runs for four tax years. Congress must act again to keep it. The end date is fixed in the law.
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“the total amount of qualified overtime compensation (as defined in section 225(c)).”
The section adds the new deduction to the list in section 63(b) of the Internal Revenue Code of 1986 so that a taxpayer who does not itemize may claim it, requires the total qualified overtime compensation to be shown under section 6051(a), requires a separate accounting of it in returns and statements under sections 6041(a) and 6041(d), and adds a new subparagraph (Z) to section 6213(g)(2) treating the omission of a correct social security number as a mathematical or clerical error.
What the document actually says
“the total amount of qualified overtime compensation (as defined in section 225(c)).”
That sentence, in plain words
The total overtime pay must be shown. The term is the one this section defines.
What this is about
It goes on the yearly wage form. Payers must also report it for non-employees. Leaving out the social security number counts as a math error.
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The document says “shall”Who acts: Secretary of the TreasuryHow: statuteSec. 70202 in the PDF
What the document says
“shall modify the procedures prescribed under section 3402(a) of the Internal Revenue Code of 1986 for taxable years beginning after December 31, 2025, to take into account the deduction allowed under section 225”
The section requires the Secretary of the Treasury or a delegate to change the withholding procedures under section 3402(a) of the Internal Revenue Code of 1986 for taxable years beginning after December 31, 2025 to take the new deduction into account. The amendments apply to taxable years beginning after December 31, 2024, and for overtime reportable for periods before January 1, 2026 filers may approximate the separate accounting by any reasonable method the Secretary specifies.
What the document actually says
“shall modify the procedures prescribed under section 3402(a) of the Internal Revenue Code of 1986 for taxable years beginning after December 31, 2025, to take into account the deduction allowed under section 225”
That sentence, in plain words
The Treasury must change how tax is held back from pay. That starts with tax years after December 31, 2025. It must allow for the new break.
What this is about
The break itself starts a year sooner. For periods before 2026 an estimate may be used. The Secretary sets what counts as reasonable.
No action is recorded against this proposal. That is not evidence that none has been taken, and nobody has yet read it against the record. See what the tracker does not yet cover.
Each distinct thing the section does: the new deduction for qualified overtime compensation, the dollar cap, the income phasedown, the definition and its exclusion of tips, the social security number and joint return conditions with the anti-abuse regulations, the end date, the treatment for non-itemizers with the new reporting duties and math error rule, and the change to withholding with the effective date and transition rule.
The clerical amendment redesignating a table of sections item, and the mechanical edits that strike an and or replace a period so a new paragraph could be added.
The section adds a section to the Internal Revenue Code of 1986 and points to section 7 of the Fair Labor Standards Act of 1938, neither of which is indexed here, so what counts as overtime under that older Act cannot be checked against anything on this site.
