Only the premium counts
This is the point most people miss. The deduction is not for all overtime pay. The IRS describes qualified overtime compensation as the pay that exceeds your regular rate, such as the half portion of time-and-a-half, and only where the overtime is required by the Fair Labor Standards Act.
So if your regular rate is $40 an hour and you are paid $60 for an overtime hour, $20 of that hour is qualified overtime. The other $40 is ordinary wages.
| Federal | Massachusetts | |
|---|---|---|
| What is deductible | The premium above your regular rate for FLSA-required overtime | Nothing; all overtime is taxable |
| Annual limit | $12,500; $25,000 married filing jointly | Not applicable |
| Income phaseout | Above $150,000 MAGI ($300,000 joint) | Not applicable |
| Social Security and Medicare | Still owed on all overtime pay | Not applicable (federal payroll taxes) |
| Where claimed | Schedule 1-A (Form 1040) | Not adopted (TIR 26-4) |
Who qualifies
Overtime paid only because of a union contract, a state rule or an employer's own policy, beyond what the federal law requires, is a question to check carefully. The deduction follows the federal FLSA requirement, and the reporting your employer gives you should reflect that.
- Employees paid overtime that the Fair Labor Standards Act requires
- A valid Social Security number
- If married, you must file jointly
- Available whether you itemize or take the standard deduction
- Phases out above $150,000 of modified adjusted gross income ($300,000 joint)
Why Massachusetts taxes it anyway
Massachusetts did not adopt the overtime deduction. The Department of Revenue says all overtime pay must be reported in Massachusetts, and TIR 26-4 lists the provision as not conforming. For a nurse, electrician, corrections officer or warehouse worker with a lot of overtime, the federal and Massachusetts returns now treat the same paycheck differently.
Illustrative example. A hospital nurse in Brockton earns a $45 regular rate and works 300 hours of FLSA overtime in 2025 at $67.50. Overtime pay is $20,250, of which the premium is 300 × $22.50 = $6,750. Federally, $6,750 is deductible on Schedule 1-A. In Massachusetts, all $20,250 is taxable at 5%, and the $6,750 premium alone accounts for $337.50 of Massachusetts tax.
Reporting for 2025 and 2026
For 2025, the IRS provided transition relief because W-2s had no separate place for qualified overtime. Pay stubs and any statement from your employer showing overtime hours and rates are the records to keep.
For 2026, qualified overtime should be reported on Form W-2 in box 12 with code TT. Non-employees may see it on Form 1099-NEC box 1d or Form 1099-MISC box 14.
- Keep pay stubs showing overtime hours and rates
- Ask your employer for a year-end overtime summary if one is offered
- For 2026, check box 12 code TT on your W-2
- Keep the records even though Massachusetts does not allow the deduction
Where we come in
We work out the qualified premium from your pay records, apply the federal limit and phaseout, and make sure the Massachusetts return includes all overtime. Before we start, we give you a scope and a price in writing.
Figures on this page were checked against the IRS and Massachusetts sources listed alongside on 28 Sep 2026. They change — confirm the current amount before relying on one.
General information for owner-led businesses, not advice for your specific situation. Tax and accounting rules change, and how they apply depends on facts particular to your business. Talk to us — or to another qualified professional — before acting on anything here.
