Tax season can be stressful — especially when you’ve worked a lot of extra hours. For many Minnesota workers, overtime pay can raise questions about taxes, take-home pay, and whether employers are following the law. This guide is designed to explain, in plain language, how overtime pay works under Minnesota law and federal law — and what that means for your tax return.
If you believe your overtime pay hasn’t been calculated or taxed fairly, don’t wait. Reach out via our online contact form or call (877) 344-4628 for a review.
Understanding Overtime Pay In Minnesota
Federal vs. Minnesota Overtime Rules
- Under the federal law known as the Fair Labor Standards Act (FLSA), many employers must pay overtime for any hours worked over 40 in a workweek.
- Under the Minnesota Fair Labor Standards Act (MFLSA), Minnesota law sets a different threshold: overtime pay is required only when hours exceed 48 in a workweek — unless an employer falls under federal coverage.
Which rule applies depends on your employer’s size, business type, and whether the federal law applies. But in either case, qualifying overtime must be paid at 1.5 times your regular rate of pay.
What Counts as Overtime Hours
Overtime is based on actual hours worked during the defined workweek. Hours spent on holidays, vacation, or sick leave typically do not count toward overtime hours.
Also, to calculate overtime pay correctly, your “regular rate” should include all recurring compensation — such as non-discretionary bonuses, shift premiums, or other compensation tied to work hours.
If an employer fails to pay overtime when required — for example, by ignoring additional hours or by misclassifying workers as exempt — that may constitute wage theft under Minnesota law.
How Overtime Pay Affects Taxes This Year
Recent Changes to Federal Tax Treatment
A recent law, the One Big Beautiful Bill Act (OBBBA), effective starting in 2025, gives many workers a new option: the portion of overtime pay that exceeds their regular rate (often called the “premium” portion) may be eligible for a federal income tax deduction.
Specifically:
- Single filers may deduct up to $12,500 per year in qualified overtime pay.
- Married couples filing jointly may deduct up to $25,000 per year.
- The deduction applies whether or not you itemize deductions.
What This Means — And What It Doesn’t
Although this change may sound like overtime becomes “tax-free,” it’s not quite that simple:
- Only the extra half of “time-and-a-half” pay — the premium — qualifies for the deduction. Your base pay remains fully taxable.
- Payroll taxes (for Social Security, Medicare) and potential state/local taxes are still withheld as usual.
- Not every worker will benefit. To qualify, you need to be a W-2 employee earning overtime under the rules, and your employer must have reported the overtime correctly.
For many, this deduction may reduce taxable income, which can lower federal tax liability or increase a refund. But how much you save depends on your income level, how much overtime premium you earned, and your overall tax situation.
What Minnesota Workers Should Check Now
Because state overtime rules and federal rules differ, it’s important to verify that your employer paid you correctly. Here are key steps to take:
- Review pay stubs and records to confirm your work hours for each week. Overtime eligibility starts either at 40 hours (under federal coverage) or 48 hours (under state-only coverage).
- Check that your overtime rate is at least 1.5 times your regular rate — and that bonuses or shift differentials were included when the regular rate was calculated.
- Confirm that overtime hours reflect actual work hours — time off for holidays, sick leave, or vacation does not count toward overtime.
- Look at pay statements to ensure overtime was paid in cash wages (or compensatory time, where allowed under public-sector exceptions).
If any part seems incorrect — unpaid overtime, miscalculation, or hours worked but not counted — that could be a violation of wage and hour laws.
How To Approach Tax Season With Overtime
When preparing your tax return:
- Separate your regular wages from overtime premium income if possible — this helps determine what portion may qualify for the deduction.
- Save all pay stubs, W-2s, and any employer documentation that shows overtime pay.
- Use the new deduction under OBBBA if you qualify — but remember that this only applies at the federal level. State taxes and payroll taxes still apply.
- Consider consulting a qualified professional if your income is high, you receive bonuses or shift pay, or you have varying rates — calculating the “regular rate” and “premium portion” correctly is essential.
When To Reach Out For Help
If your employer has denied overtime pay, underpaid overtime, misclassified hours, or failed to include bonuses or shift premiums in your regular rate, you may have legal claims. A knowledgeable Minneapolis employment law attorney can help you assess whether your rights under wage and hour law have been violated.
Understanding Overtime And Taxes With Confidence
If you’ve worked extra hours in Minnesota and earned overtime pay, it’s important to know your rights — and how new tax changes affect what you may owe or get back come tax time. The rules under the FLSA and Minnesota law exist to protect workers. And recent federal tax changes may offer some relief for qualified overtime pay.
If you want to discuss your situation, or suspect your employer may not have followed proper overtime or wage-and-hour rules, reach out to Nichols Kaster PLLP through our online contact form or call (877) 344-4628.