No tax on overtime for union construction workers: which part of your overtime counts

What counts

The deduction is for overtime pay required by section 7 of the Fair Labor Standards Act (FLSA), the federal wage law ^1,2. That law requires overtime for hours over 40 in a workweek. It works by the week, not the day, and it doesn't require overtime for Saturdays, Sundays or holidays as such ⁴.

Only the premium counts: the "half" in time-and-a-half ^1,3. The IRS works it out for each workweek like this ¹:

Hours over 40 in the workweek × ½ × your regular rate = qualified overtime for that week

Your regular rate under the FLSA isn't always your base rate. Night-shift differentials and premiums for hazardous, arduous or dirty work go into it ⁵. Your employer works it out.

What doesn't count

• The straight-time part of each overtime hour. In the IRS example, 10 overtime hours at $20 paid at double time come to $400 of overtime pay, and $100 of it counts ¹.
• Double time past time-and-a-half. Only the amount the FLSA requires counts ^1,3.
• Daily overtime in a week of 40 hours or less. The same goes for weekend or holiday premiums when the week stays at 40 hours or under ^1,3.
• Overtime paid only because of a union contract, a state law or company policy, past what the FLSA requires ¹.
• Any overtime, if you're exempt from FLSA overtime, even when your contract pays it ¹.

One thing works in a union member's favor. When your contract pays a daily or weekend premium, your employer can credit it toward the FLSA overtime it owes for the week ⁶. The credited part can count, up to the half-time amount for your hours over 40 ^1,7. So what matters is the week's total: hours over 40, times half your regular rate.

Example: a 5x10 week

Example: four 10s and a Saturday at double time

Limits, years and who can claim

• Up to $12,500 a year, or $25,000 on a joint return, for tax years 2025 through 2028 ^1,2. On a joint return the $25,000 is for both of you together, not each ³.
• The limit shrinks when your modified adjusted gross income is over $150,000 ($300,000 joint): by $100 for each $1,000 over ^2,8.
• You need a valid Social Security number, and a married couple has to file jointly ¹.
• You can take it whether you itemize or take the standard deduction. You claim it on Schedule 1-A ^1,8.
• It only lowers federal income tax. Overtime is still subject to Social Security and Medicare, and income tax is still withheld from it ^1,9. The 2026 Form W-4 lets you account for the deduction if you want less withheld ¹.

State income tax is a separate question. Check with your state's tax department.

Your W-2 for 2026: box 12, code TT

From 2026 the W-2 has a new code: box 12, code TT, the total qualified overtime for the year. Only the half portion of time-and-a-half goes there ⁹.

For 2026 and later, you can't deduct more than your W-2s show in code TT ¹. If you think the amount is too low, ask your employer for a corrected W-2 (Form W-2c). The deduction follows the corrected form ¹. Worked for several contractors? Check code TT on every W-2 ¹.

For 2025, employers didn't have to report the amount separately. Workers could figure it from pay stubs or similar statements, using a reasonable method ^3,7.

Keep your own tally as you go: each week's hours over 40 times half your regular rate. Then you can check every W-2 when it comes in January.