Overtime Deduction for Construction and Trades Workers in 2026

Construction and trades workers are among the strongest candidates for the IRC Section 225 overtime deduction. Electricians, plumbers, carpenters, welders, ironworkers, HVAC technicians, and other skilled trades professionals are almost universally classified as FLSA non-exempt, which means their overtime is legally required and their overtime premium qualifies for the deduction. With seasonal surges, project deadlines, and regular weekend work, many trades workers accumulate substantial overtime hours each year. This post walks through a construction electrician's typical schedule to show how the deduction applies to trades pay structures.

Construction electrician with 10 OT hours per week

Carlos is a journeyman electrician working on commercial construction projects. He earns $35.00 per hour and is classified as FLSA non-exempt. His typical schedule runs 50 hours per week, giving him 10 overtime hours at time-and-a-half. He files as single.

Over 2026, Carlos works 50 weeks (taking 2 weeks unpaid between projects), accumulating 500 overtime hours. His overtime premium is the 0.5x portion above his regular rate.

Carlos's $8,750 in overtime premium falls below the $12,500annual cap, so he deducts the full amount. At the 22%marginal rate, he saves $1,925 in federal income tax. A trades worker with more overtime hours or a higher hourly rate could approach or hit the cap.

How the overtime premium is calculated

The overtime deduction covers only the premium portion of overtime pay, not the total overtime wages. For time-and-a-half, the premium is the 0.5x amount above the regular rate. For double-time (common on some construction projects for Sundays or holidays), the premium is 1.0x the regular rate.

Using Carlos's $35.00/hr rate:

• Time-and-a-half: $52.50/hr total, $17.50/hr premium
• Double-time: $70.00/hr total, $35.00/hr premium

If Carlos worked some double-time hours (e.g., 50 hours at 1.5x and 50 hours at 2.0x), his deductible premium would be (50 x $17.50) + (50 x $35.00) = $2,625. Double-time hours generate twice the deductible premium per hour.

For a detailed explanation of the premium-only rule, see Only the Overtime Premium Is Deductible.

Why trades workers are FLSA non-exempt

The Fair Labor Standards Act requires employers to pay overtime for hours worked beyond 40 per week, unless the worker falls into a specific exemption category. The FLSA white-collar exemptions (executive, administrative, professional, computer employee) generally do not apply to skilled trades workers because:

• Trades work involves manual labor and skilled production, not office-based management or administration
• The "learned professional" exemption requires advanced academic knowledge; trades training, even through multi-year apprenticeships, is classified differently under DOL guidance
• Trades workers typically do not exercise the independent judgment and discretion required for the administrative exemption

This means electricians, plumbers, carpenters, welders, pipefitters, sheet metal workers, painters, roofers, and similar trades are virtually always non-exempt. Their employer is legally required to pay overtime, and that FLSA-mandated premium is exactly what IRC Section 225 was designed to cover.

W-2 Code TT and reporting

Starting in TY 2026, your employer must report qualified overtime compensation using W-2 Box 12 Code TT. This amount reflects only the overtime premium, not your total overtime wages. When you file your return, you enter the Code TT amount on Schedule 1-A and apply the $12,500 cap (or $25,000 for MFJ filers).

Construction workers who work for multiple employers during the year should collect all W-2s and add up the Code TT amounts. Each employer reports the premium from the overtime worked under their payroll independently.

Checking the MAGI phase-out

The overtime deduction phases out for higher earners. The phase-out begins at $150,000 MAGI for single filers and $300,000for MFJ. The deduction is reduced by 10% of the MAGI excess over the threshold.

Carlos's total W-2 income for the year is approximately $87,500 in regular wages plus $8,750 in overtime premium, totaling about $96,250 in MAGI. This is well below the $150,000 threshold, so no phase-out reduction applies. Most trades workers, even with substantial overtime, will fall below the phase-out threshold.

However, a dual-income household filing jointly where both spouses earn trades wages should check the $300,000 MFJ threshold. If combined MAGI approaches that level, the deduction begins to phase out at10% of the excess.

To estimate your own overtime deduction savings, use the no tax on overtime calculator. For a broader overview of the overtime premium rule, see the overtime premium glossary entry. And for workers covered by a collective bargaining agreement with different OT rates, see Overtime Deduction with Union CBA Rates.