KEY TAKEAWAYS: Over 25 million taxpayers claimed the new “no tax on overtime” deduction in 2025 filings Average deduction was about $3,100, translating into hundreds in tax savings for many filers Experts warn confusion over eligibility rules may have led to incorrect or accidental claims IRS will require clearer employer reporting starting in 2026 to reduce errors and improve compliance   Clocking extra hours in overtime in 2025 turned into some real cash at tax time for more than 25 million filers who claimed the new break on their federal income tax returns. The average deduction claimed on Schedule 1-A so far this tax season for what’s dubbed as the “no tax on overtime” break ended up being $3,100, according to Treasury officials. A $3,100 deduction for a taxpayer in the 22% tax bracket would lead to a $682 tax cut. That cut could increase the size of the refund or translate into fewer tax dollars owed. In a 12% bracket, a $3,100 deduction would generate a $372 tax cut. What is the ‘no tax on overtime’ deduction? While most people have filed their 2025 tax returns already, it’s important to understand that the overtime tax deduction, as well as three key other deductions on Schedule 1-A, apply for 2025 through 2028. The U.S. Treasury Department said the average tax cut so far is more than $800 for those benefiting from one of Trump’s “signature tax cuts” — including deductions on overtime, tips, car loans and a new deduction for seniors. Overall, more than 53 million tax filers claimed at least one of President Donald Trump’s signature new tax cuts, according to a Treasury Department announcement made on April 15. What’s the average tax refund so far? Across the board, the average federal income tax refund was $3,462 — up 11.1% or $346 — through April 3, according to seasonal statistics from the Internal Revenue Service. It’s welcome cash for many, but those who don’t qualify for some of these new big tax deductions do not see a big influx of cash. In all, 69.8 million refunds were issued through April 3, up 3.1%. The total dollar amount of refunds issued hit $241.74 billion, up 14.5%. The Internal Revenue Service processed more than 99 million income tax returns through April 3, down 1.3% from the same time a year ago. How many claimed tax breaks for car loans, tips, seniors? IRS CEO Frank Bisignano said in a statement that the tax legislation signed into law fueled “historically high refunds” that surpassed expectations. Treasury Secretary Scott Bessent said in a statement that “hardworking Americans should be rewarded, not punished with tax hikes, and the results of this tax season prove it.” Treasury rolled out other numbers as of April 14, the day before Tax Day, including: More 1 million filers claimed a deduction for new car loan interest on cars and trucks with final assembly in the United States. The average deduction was more than $1,800. More than 6 million filers claimed a deduction on tip income. The average deduction claimed was more than $7,100. More than 30 million adults 65 and older claimed the “enhanced deduction for seniors.” The average deduction was more than $7,500. Number of OT deductions exceeded forecasts What’s interesting about the OT tax deduction is that many experts didn’t see this one coming when it came to the numbers. Early on, one estimate suggested around 15 million workers could qualify for the OT deduction in 2025, based on Bureau of Labor Statistics and Department of Labor data from Yale Budget Lab, said Garrett Watson, director of policy analysis for the Tax Foundation. It was roughly 12% of hourly workers and 5% of salaried workers. With weeks to go until the April 15 tax filing deadline, though, the U.S. Treasury Department indicated that more than 15.5 million federal income tax returns already had claimed “No Tax on Overtime” as of March 8. Nearly 45% of the 63.5 million returns processed as of March 8 had claimed at least one of the big four tax deductions on Schedule 1-A, according to Treasury. Now, of course, Treasury has reported that more than 25 million filers already claimed the new OT break in early April, with more a bit more time to go before the April 15 deadline. Andrew Lautz, director of tax policy for the Bipartisan Policy Center, said he turned to data from the Tax Policy Center, which implied that about 17 million returns would benefit from the OT deduction. Lautz told the Detroit Free Press that a few possibilities exist for the surge in OT deductions being claimed. First, it’s possible that hours of overtime worked ended up being underestimated in earlier forecasts. “The data’s complicated and it’s possible that non-governmental experts, despite making their best-faith efforts, underestimated the number of workers eligible for the deduction,” Lautz said. How overtime deductions might not add up And it’s possible, experts say, that some people claimed the OT deduction when they didn’t qualify under some complex requirements. It’s likely accidental, Lautz said, not intentional. A worker’s job, for example, must qualify for overtime pay under the Fair Labor Standards Act. The tax break would not apply to someone who received overtime, maybe under a union contract or state-mandated rule, but is not covered under the Fair Labor Standards Act. “Whether an individual is covered by and not exempt under the FLSA is a fact-specific determination that depends on the individual’s occupation, work activities, and/or earnings,” according to the IRS. As a result, it might be easy for some people to wrongly believe their overtime hours qualify for a tax break when they don’t. “To the extent this is the case, I expect many of those claims are accidental,” Lautz said. “In other words, I’d be surprised if millions are intentionally claiming when they know they’re not eligible,” he said. Yet Lautz acknowledged that the wording on Schedule 1-A — which labels the tax break under the heading “No Tax on Overtime” — might trip up some do-it-yourself taxpayers or those eager to save money. “I’d be less surprised if plenty of workers see ‘no tax on overtime’ and assume that their overtime is eligible, even if the statute and regulations clarify that they are not eligible,” Lautz said. Where some workers could be getting it wrong Another possible point of confusion: How much overtime hours can you really claim? The amount claimed for the deduction is only the “half” portion at time-and-a-half for overtime. Say you make $10 an hour for regular pay, for example. You’d pay able to deduct $5 in an overtime premium. That’s true if you were paid at time-and-a-half or even paid at double-time under some contracts or conditions. To claim $3,100 in qualified overtime for the deduction, a worker would have had to have been paid $9,300 for overtime hours paid at time-and-a-half in 2025. And the size of the deduction you could claim could be reduced if your income was too high. Watson said some manufacturing workers, based on Bureau of Labor Statistics data, can show average overtime hours of around 3.5 hours to 4 hours per week, which is close to 9% of total compensation. That, he said, could be consistent with an average $3,100 deduction for the premium or “half-time” amount for overtime dollars earned. In addition, according to IRS guidelines, individuals eligible for overtime under the Fair Labor Standards Act generally must receive overtime pay for hours worked in excess of 40 in a workweek. The maximum annual deduction for overtime pay is $12,500 for unmarried tax filers and $25,000 for a married couple filing jointly. Married couples who file separately cannot claim the deduction for overtime pay. At this point, no one can say how many improper claims were made on 2025 returns. But Watson said some portion of the 25 million OT deductions claimed so far on 2025 returns, Watson said, could prove to be improper. Workers didn’t have all the documentation they needed, after all, to make accurate claims in many cases. In November 2025, the Treasury and IRS waived reporting requirements for employers relating to OT hours worked during tax year 2025. One Big Beautiful Bill was signed into law on July 4, 2025, when half the year was over. As a result, many workers didn’t see overtime pay listed on their W-2 or 1099. “Absent audit or other data, we can’t know how much this could be driving the numbers yet,” Watson said. The number of OT deductions claimed on 2025 returns, he said, could end up being lower at some point once improper claims are identified and stripped out of the data. Beginning in 2026 and after, employers and other payers will be required to separately report qualified overtime compensation that could be claimed as an OT deduction. No such requirement existed for OT earned in 2025. Next tax season, Watson said, employers will be reporting eligible overtime income in a separate breakout, which will make it easier for the IRS to enforce the tax rules and taxpayers to know exactly how much overtime income they may be able to deduct. It was a mixed bag for 2025 with some employers reporting different types of OT information. “We know that employers were not required to report qualified overtime for 2025, so many taxpayers may have interpreted the overtime reported by the employer as qualified overtime,” said Mark Luscombe, principal analyst for Wolters Kluwer Tax Accounting in Riverwoods, Illinois. “This should be corrected in 2026,” Luscombe said, “when employers will be required separately report qualified overtime on Box 12 of Form W-2 with the Code TT.” Tax filers who didn’t receive complete information from their employers for 2025 OT had to review their pay stubs and calendars and create a log showing the days and hours they worked overtime. In some cases, information received by some workers might not have been complete or accurate. Oddly enough, the IRS reportedly told some of its employees that they’ll need to file amended 2025 returns because of a snafu with how their overtime pay was reported on their W-2 forms. IRS employees in this situation received corrected W-2 forms with the correct amount of taxable overtime earnings, according to a report in the Federal News Network. “The IRS is telling employees to submit an amended tax return with the correct amount of overtime earnings if it changes the amount of your total tax,” the Federal News Network reported on March 31. Without some of these supporting documents, experts warn some workers could be more vulnerable to an IRS audit or the disallowance of the OT deduction. Yet Luscombe added that the IRS does not have the manpower now to audit all the OT deductions and other new breaks, especially given the small amounts involving individual filers in many cases. So it could be a wait-and-see situation for those who might have made mistakes. Going forward, the IRS noted that Forms W-2, 1099-NEC, and 1099-MISC will be updated to allow employers and other payers to provide separate reporting of an individual’s qualified overtime compensation. Things should be clearer when doing 2026 returns next year. IRS warns of scams related to overtime deduction Brandon DeBot, policy director at The Tax Law Center at NYU Law, raised concerns that the OT deduction might have been overclaimed on 2025 returns, especially given the complexity of the rules for claiming the deduction, the lack of reporting requirements for employers for 2025, and even the misleading label on the Schedule 1-A for “no tax on overtime.” It’s not true that all overtime pay or tip income is tax free. “The deductions are only for income taxes, not payroll taxes. They’re capped. There are eligibility requirements,” DeBot told the Detroit Free Press. The overtime deduction is reduced if a taxpayer’s modified adjusted gross income for the tax year exceeds $150,000 if single and exceeds $300,000 for a married couple filing a joint return. The deduction phases out at a rate of $100 for each $1,000 over the threshold. The deduction is no longer available at all if a single taxpayer’s modified adjusted gross income hits $275,000. For married couples filing a joint return, the deduction is eliminated at a modified adjusted gross income of $550,000. If many people claimed the deduction but weren’t qualified to do so, DeBot noted, the government loses revenue and individuals risk the chance of an audit or receiving an adjustment notice. DeBot said some unscrupulous tax preparers likely took advantage of the misinformation, complexity and confusion to convince taxpayers that they qualified for tax breaks when they didn’t. Bad actors who sold such false promises also charged very high tax preparation fees when they promoted tax saving schemes. He expressed concern that the “so-called ‘no tax on’ provisions raise the risks of scams overall. Some lawmakers, heads of federal agencies, and the White House made the new deductions for tips, overtime, auto loan interest, and senior deductions seem far simpler and more generous than they are, according to a recent The Tax Law Center blog. In March, IRS warned taxpayers to guard against dishonest tax preparers advertising so-called expert help for claiming the tip and overtime deductions. The IRS said these bad actors often charge excessive fees and inflate amounts claimed on returns. Common tactics, according to the IRS, include guaranteeing eligibility, promising unusually large refunds related to tip income or overtime, and “inflating or inventing deduction amounts without proper documentation.” Contact personal finance columnist Susan Tompor: [email protected]. Follow her on X @tompor. This article originally appeared on Detroit Free Press: Millions claimed new overtime tax break. Some may have gotten it wrong Reporting by Susan Tompor, Detroit Free Press / Detroit Free Press USA TODAY Network via Reuters Connect ...read more read less