By Tim Grant
Pittsburgh Post-Gazette
(TNS)
Across Pittsburgh and beyond, workers are discovering that a new overtime tax break is proving less generous—and more complicated—than expected.
In some cases, workers are discovering they can’t even claim the deduction without doing extra legwork. Pittsburgh tax accountant Howard Davis said a client recently came in expecting to write off his overtime pay, only to realize his W-2 didn’t break it out.
“I told him to go back to his employer and get some kind of print out which shows what his overtime hours were,” said Mr. Davis, president of Davis, Davis & Associates in the Strip District.
Without documentation showing those hours, Mr. Davis said, the deduction isn’t straightforward—a surprise that’s becoming increasingly common as the first tax-filing season under the new law begins.
“Hopefully, in 2026, it will show on the W-2,” Mr. Davis said. “But in 2025—maybe because the law was passed in July, it didn’t give the government enough time to provide it on the W-2.”
Lucas Rihely, a partner at H2R CPA in Green Tree, said the reporting for 2025 can vary by employer because this year there is no standard requirement for employers to hand over the information employees need to calculate their deduction.
In 2026, “W-2s will include defined codes for the qualified overtime deduction,” Mr. Rihely said. “But for 2025, the IRS has left it to the employers and taxpayers to determine reasonable reporting methods and support for the deduction.”
When Congress passed the “No Tax on Overtime” provision as part of the One Big Beautiful Bill Act in July, for millions of workers it felt like a long-overdue reward for late nights, double shifts and weekends on the clock.
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Now, they’re discovering that it’s more complicated. For instance, the law caps the benefit at $12,500 for individuals and $25,000 for married couples filing jointly. And even that figure can be misleading because only the premium portion of overtime—the “half” in time-and-a-half pay—actually qualifies.
Take a worker earning $40 an hour. Overtime bumps their rate to $60. But when it comes to the deduction, only the extra $20 per hour counts—not the full $60. The base pay portion remains fully taxable.
Layered on top of that restriction are income limits.
The benefit starts to phase out—meaning it gets progressively less—starting when an individual’s modified adjusted gross income exceeds $150,000 for single filers and $300,000 for married couples filing jointly.
For individuals, the maximum deduction is reduced by $100 for every $1,000 their modified adjusted gross income, or MAGI, exceeds $150,000. MAGI, in simple terms, is your total income with certain adjustments added back in—like some tax-free income or deductions. It’s the number the Internal Revenue Service uses to determine eligibility for tax breaks.
As a workers’ income rises, the deduction continues to shrink until it phases out entirely.
That happens at $275,000 for individuals and $550,000 for joint filers. While the deduction never drops below zero, the end result is the same: Beyond those thresholds, the overtime tax break is gone.
While it’s still a tax break, it’s not nearly as big or simple as it first appeared.
And the overtime provision isn’t the only break getting a reality check this year.
The so-called “no tax on tips” rule offers a similar promise and a similar set of limitations: Workers in tip-based jobs, from servers to bartenders to hairstylists, can deduct a portion of that income from their federal taxes. And, unlike overtime, those earnings are typically already itemized on a W-2, making them easier to document.
But the benefit—which runs from 2025 to 2028—also has limits.
Individuals can deduct up to $25,000 in qualified tip income, with that amount beginning to phase out once modified adjusted gross income exceeds $150,000 for individuals and $300,000 for married couples filing jointly.
As income rises, the deduction shrinks and can eventually disappear altogether.
Photo credit: courtneyk/iStock
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© 2026 the Pittsburgh Post-Gazette. Visit www.post-gazette.com. Distributed by Tribune Content Agency LLC.
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