How the phase-out works
First the deduction is capped at $12,500, or $25,000 on a joint return. Then it's reduced by $100 for every $1,000 your modified adjusted gross income (MAGI) is above the threshold. MAGI is your adjusted gross income plus any foreign earned income you excluded. For most people it's simply the AGI on line 11 of Form 1040.
Phase-out table at the maximum deduction
| MAGI | Single or head of household | MAGI | Married filing jointly |
|---|---|---|---|
| $150,000 | $12,500 | $300,000 | $25,000 |
| $175,000 | $10,000 | $350,000 | $20,000 |
| $200,000 | $7,500 | $400,000 | $15,000 |
| $225,000 | $5,000 | $450,000 | $10,000 |
| $250,000 | $2,500 | $500,000 | $5,000 |
| $275,000 | $0 | $550,000 | $0 |
If your overtime premium is smaller
The reduction comes off whatever you're allowed, not off the $12,500 maximum. A single filer with a $4,000 premium and MAGI of $180,000 loses $3,000 and deducts $1,000.
Premium $4,000, under the $12,500 cap.
MAGI $180,000 is $30,000 over $150,000. 30 × $100 = $3,000 reduction.
Deduction: $4,000 − $3,000 = $1,000.
Most overtime earners are well under the limit
The phase-out starts at $150,000 for a single filer. A worker earning $40 an hour with 10 hours of overtime a week makes about $114,000 a year, so the income limit doesn't touch them. It matters mostly for two-earner households and high-paid trades.
Updated November 3, 2026. Sources: Internal Revenue Code §225, IRS Notice 2025-69, IRS questions and answers on the qualified overtime deduction (FS-2026-13), IRS Fact Sheet 2025-03.