Step 1: cap the reported amount
If a single taxpayer's properly reported qualified overtime is $18,000, begin with the $12,500 statutory cap. A joint return with $30,000 reported begins with the $25,000 joint cap.
Qualified overtime limits
Qualified overtime deduction caps and MAGI phaseout
After finding qualified overtime compensation, apply the annual deduction cap and then reduce it when modified adjusted gross income exceeds the statutory threshold.
This page estimates one deduction in isolation. Use the 2026 return instructions and a complete MAGI calculation before filing, especially when foreign or territorial income exclusions apply.
| Return type | Annual cap | MAGI phaseout starts |
|---|---|---|
| Single or head of household | $12,500 per return | Above $150,000 |
| Married filing jointly | $25,000 per joint return | Above $300,000 |
| Married filing separately | Not allowed | Married taxpayers generally must file jointly |
Step 2: calculate phaseout
The deduction is reduced by $100 for each $1,000 of MAGI above $150,000, or above $300,000 for a joint return. The result cannot fall below $0.
Step 3: compare with qualified pay
The allowed deduction cannot exceed qualified overtime actually received and properly reported. The employer reports the qualified amount; the employee applies the cap and phaseout on the return.
Phaseout examples
| Scenario | Calculation | Estimated deduction |
|---|---|---|
| Single, $8,000 qualified overtime, $150,000 MAGI | No MAGI excess | $8,000 |
| Single, $8,000 qualified overtime, $160,000 MAGI | $10,000 excess × $100 per $1,000 = $1,000 reduction | $7,000 |
| Single, $20,000 qualified overtime, $275,000 MAGI | $12,500 cap minus $12,500 phaseout | $0 |
| Joint, $30,000 qualified overtime, $330,000 MAGI | $25,000 cap minus $3,000 phaseout | $22,000 |
The deduction is available in addition to either the standard deduction or itemized deductions. A valid work-authorized Social Security number is required for the person who received the compensation; if both spouses claim qualified overtime on a joint return, both need qualifying SSNs.
Sources: IRS FS-2026-13, 26 USC Section 225, and IRS IRM 3.11.6.15.1.4.2. Last reviewed 2026-08-16.