Cafeteria Staff and Custodians May Save Up to $2,750 a Year on Overtime Taxes — But the Benefit Won’t Last Forever

A federal deduction can be applied to qualifying overtime earned since the start of 2025, but workers must meet FLSA rules, income limits, and filing requirements.

The Briefing:

• The No Tax on Overtime deduction applies retroactively from January 1, 2025, and was enacted as part of the One Big Beautiful Bill Act signed in 2025.
• Only the overtime premium — the extra "half" in time-and-a-half — qualifies for the deduction, not the entire overtime paycheck.
• The deduction sunsets at the end of 2028, and no extension legislation has cleared Congress as of the latest reporting.

A federal tax deduction worth up to $2,750 a year has been available since January 2025 to millions of hourly workers, including cafeteria employees, custodians, and campus maintenance crews who keep American universities operating. Yet many Latino workers in higher education have never heard of it, and even fewer know the benefit ends on December 31, 2028.

That expiration date matters: each tax year that goes unclaimed is money that cannot be recovered later, and current law offers no assurance that lawmakers will extend the break before it disappears.

What the Law Actually Does

The One Big Beautiful Bill Act created a new federal income tax deduction for certain overtime pay for tax years 2025 through 2028. The measure, formally structured as an above-the-line adjustment to income, allows eligible workers to reduce taxable income whether they itemize or take the standard deduction. That is especially important for hourly employees, since most use the standard deduction and can still benefit without changing how they file.

The deduction is narrower than many workers expect. Time-and-a-half overtime includes two parts: the regular-rate 1.0× portion and the additional 0.5× premium. Only the premium half is deductible. For example, a campus custodian earning $18 an hour who works 10 hours of overtime in a week would generate a qualifying premium of $90, not the full $270 shown on a time-and-a-half paycheck. Over a full year, though, those premiums can add up. A worker producing $500 a month in FLSA overtime premiums could lower federal taxable income by $6,000, which could mean about $720 to $1,320 in annual federal tax savings depending on the tax bracket. Workers whose qualifying premiums reach the $12,500 cap and are in the 22 percent bracket could save up to $2,750.

Who Qualifies — and What Many Campus Workers Get Wrong

The Core Eligibility Requirements

To claim the deduction, a worker must be a non-exempt hourly employee who works more than 40 hours in a single workweek, receives overtime required under Section 7 of the Fair Labor Standards Act, and files taxes using a valid Social Security number. Taxpayers who use an ITIN, including many undocumented workers, are not eligible.

The deduction is capped at $12,500 for single filers and $25,000 for married couples filing jointly. It starts phasing out once modified adjusted gross income goes above $150,000, or $300,000 for joint filers, with the benefit reduced by $100 for every additional $1,000 of income above those limits.

Three Traps That Catch Campus Workers

Three common mistakes often affect Latino campus employees. First, overtime created only by a university’s internal scheduling rules or a union contract — rather than by the federal 40-hour workweek standard — does not count as qualifying premium pay under the FLSA. Some campuses trigger overtime after 37.5 hours for operational reasons, but those extra hours do not qualify federally. Second, salaried exempt employees and adjunct instructors paid a flat per-course amount are not covered by the FLSA overtime rules and therefore cannot use this deduction, no matter how many extra hours they work. Third, the benefit does not raise take-home pay during the year. Social Security and Medicare taxes still apply to all overtime earnings, and federal withholding continues as usual. The tax savings show up only when filing the annual Form 1040.

Why Workers in Texas and Puerto Rico on the Mainland May Feel the Greatest Urgency

Bureau of Labor Statistics annual averages show that roughly 2.5 million Latinos worked in food preparation and serving jobs nationally, while another 2.3 million were employed in building and grounds cleaning and maintenance. Those are two of the occupational groups with some of the highest exposure to FLSA-eligible hourly overtime across the U.S. workforce.

The stakes are even higher for workers in Texas, where there is no state income tax, making the federal deduction the only income tax relief available on overtime pay. Puerto Rican workers who moved to the mainland in the years after Hurricane María are also heavily represented in these campus-based jobs, face the same federal tax filing rules as other U.S. citizens, and usually earn far less than the income level where the phaseout begins.

The 2028 Deadline Built Into the Law

Public Law 119-21 limits the deduction to tax years 2025, 2026, 2027, and 2028. On January 1, 2029, it ends automatically unless Congress passes separate legislation to extend it. No such measure has cleared either chamber as of the latest reporting.

Some tax experts say future election cycles could create pressure to prolong the deduction, but counting on that would be a risky financial strategy. The safer approach is to treat 2028 as the final eligible year, claim the deduction whenever possible, and not wait for a last-minute decision in Washington.

How to Claim It Before the Window Closes

What to Expect on Tax Forms

For the 2025 tax year, the IRS used a transition period, so employers were not required to separately label qualifying FLSA overtime premiums on W-2 forms. Some universities, including Harvard and the University of Michigan, did so voluntarily and listed the premium amount in Box 14. Beginning with the 2026 tax year, reported on W-2s filed the following January, employers must report qualified overtime compensation in Box 12, Code TT, on the updated Form W-2.

Workers who already filed a 2025 return without claiming the deduction can still recover the savings by filing an amended return on Form 1040-X. The IRS process for amended returns is relatively simple, and many free-file programs allow it.

Estimating the Qualifying Premium

If workers are unsure of the exact qualifying amount, they can use a simple estimate: divide total FLSA overtime pay received during the year by three. Since the deductible portion is the 0.5× premium out of the 1.5× time-and-a-half total, it equals one-third of the full overtime compensation. Anyone with multiple jobs, changing hourly rates, or irregular schedules should bring pay records to a tax professional before filing, because those factors can affect the calculation under FLSA rules.