No Tax on Overtime: a warehouse worker deducts the overtime premium
A single distribution-center worker in San Antonio who logs a lot of overtime. The One Big Beautiful Bill Act's new No Tax on Overtime deduction (Schedule 1-A) lets him deduct the overtime premium, the half of time-and-a-half, for tax years 2025 through 2028.
Taxpayer facts
Who this is and what their year looked like.
Hector is single, 34, and works full time at a distribution center outside San Antonio, often picking up overtime shifts.
His only income is his W-2. Box 1 includes all of his pay, and his employer furnished a separate statement showing the qualified overtime compensation for the year, the first year the No Tax on Overtime deduction is available.
- NameHector R. Vargas
- Date of birth02/09/1991
- SSN452-70-3318
- Age (as of 12/31/2025)34
- Filing statusSingle
- DependentsNone
- Claimed as a dependent by anyone else?No
- OccupationWarehouse associate
- Address915 Pleasanton Rd, San Antonio, TX 78214
- ResidencyTexas, full year (no state income tax)
- OvertimeThe qualified overtime is the premium portion only (the extra half of time-and-a-half required by the FLSA), shown on the employer's statement. It is already included in W-2 box 1 wages.
- Health coverageEmployer plan, full year
Source documents
Work from these the way you would a real client's paperwork. Everything is fictional.
Objectives
What a correct return should capture.
- Report the W-2 box 1 wages on Form 1040 line 1a. The overtime pay is already inside box 1, so it is part of wages and part of AGI.
- Find the qualified overtime from the employer's statement (the FLSA premium portion only, not the full overtime pay).
- Claim the No Tax on Overtime deduction on new Schedule 1-A, limited to the lesser of the qualified overtime or the annual single cap, and confirm modified AGI is under the phase-out threshold.
- Take the single standard deduction, which applies in addition to the overtime deduction, to reach taxable income.
- Figure the tax from the Tax Table and compare it to the federal withholding in box 2 for the refund. Note that Texas has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
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