No Tax on Overtime Pay? What the New 2025–2028 Deduction Means for Michigan Workers

If you live here in Michigan and you’ve ever put in long hours at work to make ends meet, you know the satisfaction (and exhaustion) of seeing that bigger paycheck after working overtime. You also know the frustration of seeing how much of that extra pay gets eaten up by taxes.

Starting in 2025, there’s some good news: a new federal deduction will allow many workers to deduct part of their overtime pay—meaning you could keep more of what you earn. It’s not a complete elimination of taxes on overtime, but for many people here in Michigan, it’s a meaningful break.

As a CPA working with clients across the state, I want to break this down so you know exactly what it means, who qualifies, and how to plan ahead to take advantage of it.

What Is the Overtime Pay Deduction?

Beginning in the 2025 tax year and lasting through 2028, qualifying workers will be able to deduct the “extra half” of their overtime pay—the portion you earn above your standard hourly rate when you work time-and-a-half.

Here’s an example:

• If your normal wage is $20/hour, overtime pay is $30/hour (time-and-a-half).

• The “extra half” is $10/hour—that’s the part that may be deductible under this new law.

This deduction applies to overtime pay required under the Fair Labor Standards Act (FLSA) and reported on a W-2, 1099, or similar tax document.

How Much Can You Deduct?

The deduction is capped each year at:

• $12,500 for single filers

• $25,000 for married couples filing jointly

This means you can’t deduct unlimited overtime, but for many Michigan workers—especially those in manufacturing, skilled trades, healthcare, and emergency services—this could still be a substantial tax savings.

Who Qualifies in Michigan?

To qualify for this deduction, you need to meet a few requirements:

1. Your overtime must be covered under the FLSA – This covers most hourly employees in Michigan.

2. Your overtime must be properly reported – It must show up on your W-2, 1099, or equivalent form.

3. You must file jointly if married – Married filing separately doesn’t qualify.

4. You must include your Social Security number – This is required on your return.

The good news is you can claim this deduction even if you take the standard deduction—you don’t have to itemize.

Income Limits

This deduction is meant for middle-income earners, so there are income caps:

• $150,000 Modified Adjusted Gross Income (MAGI) for single filers

• $300,000 MAGI for joint filers

Once your income exceeds these thresholds, the deduction phases out.

For many Michigan families—especially in areas like Lansing, Grand Rapids, and Metro Detroit—these limits still leave plenty of room to qualify.

Michigan Jobs That Could Benefit the Most

Here in Michigan, we have a strong mix of industries that regularly rely on overtime. This new deduction could be especially beneficial for:

• Automotive manufacturing workers in Detroit, Dearborn, Flint, and Lansing

• Skilled trades like electricians, plumbers, and machinists

• Healthcare workers including nurses, EMTs, and hospital staff who work extra shifts

• Police officers and firefighters who often log significant overtime hours

• Seasonal workers in tourism, agriculture, and shipping

• Utility workers dealing with power outages and storm response

If you’re in one of these industries, there’s a good chance you could benefit.

How It Will Appear on Your Tax Documents

Your employer (or payor if you’re a contractor) will be responsible for reporting your eligible overtime pay to you and the IRS. This will likely be included as a separate figure on your W-2 or 1099.

That means accurate payroll reporting is critical—if your employer isn’t tracking your overtime correctly, you could lose out on the deduction.

Example: How Much Could You Save?

Let’s look at a real-world example for a Michigan worker:

Maria, a registered nurse in Ann Arbor, earns $40/hour and typically works 10 hours of overtime per week.

• Overtime pay: $60/hour (time-and-a-half)

• Extra half: $20/hour

• 10 hours/week × 52 weeks = 520 hours/year

• Extra half total = $20 × 520 = $10,400

Maria could deduct $10,400 from her taxable income. If she’s in the 22% tax bracket, that’s a $2,288 federal tax savings—plus any additional state tax savings.

Planning Tips for Michigan Workers

Here’s how to make sure you get the full benefit:

1. Track Your Overtime

Don’t rely solely on your employer—keep your own records of overtime worked and pay received.

2. Confirm FLSA Coverage

Most hourly jobs are covered, but if you’re salaried or in a unique role, double-check.

3. Monitor Your Income

If you’re close to the income limits, we can look at strategies to reduce MAGI to stay eligible.

4. Coordinate With Your Spouse

If you’re married and filing jointly, coordinate your overtime and other income to maximize the deduction.

5. Avoid Underreporting

Some workers think underreporting overtime could help—but in this case, you actually want accurate reporting so you can claim the deduction.

Impact on Michigan’s Workforce

Michigan’s economy has always been driven by hard work—and often, long hours. In industries like auto manufacturing and healthcare, overtime is not just common—it’s expected.

This deduction gives something back to the people who keep Michigan moving, whether you’re on the factory floor in Detroit, pulling a double shift in a Traverse City hospital, or restoring power lines after a storm in the Upper Peninsula.

How I Can Help as Your CPA

From my office here in Michigan, I work one-on-one with clients to navigate new tax laws like this one. I can help you:

• Understand if your overtime qualifies

• Calculate your potential savings

• Ensure your employer is reporting your overtime correctly

• Incorporate this deduction into a broader tax strategy

Because I’m a solo CPA, you’ll work directly with me—not get passed around a large firm. My goal is to help Michigan workers keep more of their hard-earned money.

Final Thoughts

The “No Tax on Overtime” deduction is a great opportunity for many Michigan workers—but like all tax laws, the details matter.

By planning ahead, tracking your overtime, and working with a knowledgeable CPA, you can make sure you get the full benefit from 2025 through 2028.

If you’d like to see how much this could save you, I’d be happy to run the numbers and help you prepare.

Mark Persitz, CPA
📍 Serving clients across Michigan
🌐 https://persitzcpa.com
📞 Contact me to schedule your consultation