Schedule 1-A overtime deduction

Before you complete Part III

The 2025 Schedule 1-A is attached to Form 1040, 1040-SR, or 1040-NR. It combines four additional deductions, including qualified overtime. Part III is only for compensation paid as required under section 7 of the Fair Labor Standards Act that exceeds the regular rate.

Overtime remains part of gross income and is generally subject to federal income tax withholding, Social Security, and Medicare tax. The phrase “no tax on overtime” describes an income tax deduction. It does not exclude the full overtime paycheck from wages.

For an ordinary employee paid time-and-a-half after 40 hours in a workweek, the qualified amount is generally the extra half portion required by the FLSA. A $30 regular rate with a $45 overtime rate produces a $15 qualified premium for each qualifying overtime hour, not $45.

Part III line by line

1. Line 14aEnter qualified overtime compensation included in Form W-2 box 1. Also include qualified overtime not in box 1, such as an amount deferred under a qualified retirement plan, and keep records showing it. For 2025, a separately labeled amount may appear in box 14 or on another employer statement. If it is not separately identified, use a reasonable method allowed by the instructions.
2. Line 14bEnter qualified overtime compensation included in Form 1099-NEC box 1 or Form 1099-MISC box 3. Enter only the qualified portion, not the full box amount. This rare path applies when a person is an employee for FLSA purposes but is treated as an independent contractor for federal tax purposes. An ordinary self-employed contractor does not qualify merely because a payer issues Form 1099.
3. Line 14cAdd lines 14a and 14b to get the combined qualified amount before the annual maximum and income phaseout.
4. Line 15Enter the smaller of line 14c or $12,500. A married couple filing jointly uses a combined $25,000 maximum. The $25,000 limit applies to the return, not separately to each spouse.
5. Line 16Copy Schedule 1-A Part I line 3, the form’s MAGI amount. Part I starts with Form 1040 line 11b and adds specified excluded income.
6. Line 17Enter $150,000, or $300,000 if married filing jointly. These are phaseout thresholds, not income ceilings that instantly erase the entire deduction.
7. Line 18Subtract line 17 from line 16. If the result is zero or less, skip the phaseout calculation and carry line 15 to line 21.
8. Line 19Divide line 18 by $1,000 and decrease a fractional result to the next lower whole number. For example, $18,500 becomes 18 complete steps.
9. Line 20Multiply line 19 by $100 to get the reduction caused by MAGI above the threshold.
10. Line 21Subtract line 20 from line 15. Enter zero if the result is zero or less. Line 21 is the qualified overtime compensation deduction.

Part VI then adds the allowed deductions from Schedule 1-A. The total goes to Form 1040 or 1040-SR line 13b, or the corresponding Form 1040-NR line stated on the schedule.

A worked Part III example

Assume a single filer has $8,400 of supported qualified overtime compensation included in W-2 box 1 and Schedule 1-A MAGI of $167,750.

Swipe the table sideways to see every column.

Use the income limit calculator to reproduce this phaseout and test other filing statuses, qualified amounts, and MAGI values. It shows each intermediate value instead of returning a black-box result.

How 2025 and 2026 reporting differ

The filing steps above describe the published 2025 Schedule 1-A. Employers were not required to separately account for qualified overtime on 2025 Forms W-2 and 1099, so the 2025 instructions provide several reasonable methods to identify the qualified portion.

For 2026, the IRS says an employee’s qualified overtime should be reported in Form W-2 box 12 with code TT. In the rare dual-classification case where a person is an employee under the FLSA but an independent contractor for federal tax purposes, 2026 Publication 505 identifies Form 1099-MISC box 14 and Form 1099-NEC box 1d. Conventional self-employment is not made eligible by a 1099. A 2026 Code TT or 1099 amount is a reporting input. The deduction still depends on eligibility, the cap, MAGI, filing status, and the official schedule for the year.

If a 2026 W-2 Code TT amount appears wrong, use the Code TT correction worksheet to organize workweek records and prepare an inquiry to payroll. The IRS August 2026 FAQ explains when an employer correction through Form W-2c is required and limits what an employee can claim when an omitted amount is not corrected.

Records to keep

• Every Form W-2, 1099-NEC, and 1099-MISC used in the calculation.
• Employer or service-recipient statements identifying the FLSA overtime premium.
• Pay stubs, time records, and regular-rate calculations supporting a reasonable method.
• The completed Schedule 1-A Part I MAGI calculation.
• Any corrected Form W-2c and the correspondence that led to it.
• A copy of the official form and instructions used for the filed tax year.

Do not add state-only overtime, holiday or weekend premiums without FLSA overtime, qualified tips, or employer-paid premium above the federal requirement to the qualified amount. Special section 7 rules can apply to some public-sector, fire-protection, law-enforcement, and other workers. Those cases may require a different reasonable method.

Final filing checks

1. Confirm that Part III uses qualified compensation rather than total overtime earnings.
2. Reconcile the amount to the information returns and supporting payroll records.
3. Apply the annual maximum before the MAGI reduction.
4. Use line 3 from Part I for MAGI and the correct filing-status threshold.
5. Transfer the final Schedule 1-A total to the line specified by the form.
6. Check for updated IRS forms or guidance before submitting the return.