Trump signed the One Big Beautiful Bill Act on July 4th, 2025. Part of that bill? No tax on overtime for certain workers through 2028.
But here’s what nobody’s telling you straight: it’s not what you probably think it is.
What Actually Passed
The law lets you deduct up to $12,500 in overtime pay from your federal taxable income if you’re single. Married couples filing jointly can deduct up to $25,000. That’s for the 2025 through 2028 tax years.
Sounds great, right? Well, hold on.
The deduction only applies to the “extra” part of your overtime pay. You know how overtime is usually time-and-a-half? Only the “half” part is tax-free. The regular part still gets taxed like normal.
So no tax on overtime; how does it work in practice? Let’s say you make $20 an hour. When you work overtime, you get $30 an hour; it is your regular $20 plus an extra $10. Only that $10 extra gets the tax break. The $20 portion still gets taxed like regular wages.
CNN talked to tax experts who said most people hear “no tax on overtime” and think their entire overtime paycheck won’t be taxed. That’s not how it works at all.
No Tax on Overtime Income Limit
There’s a catch. Several, actually.
First, this only applies to single filers making up to $150,000. Once you hit $150,000, the deduction starts phasing out. By the time you’re making $275,000, you don’t get any deduction at all.
For married couples filing jointly, those numbers double and become $300,000 and $550,000.
You also have to file jointly if you’re married. Filing separately? You don’t get the deduction at all.
And you need a Social Security number valid for work. No exceptions.
Who Qualifies
This is where things get messy. The deduction applies to “non-exempt” workers under the Fair Labor Standards Act. That’s typically hourly workers or people making less than $35,568 a year.
Basically, if you’re already entitled to overtime pay by law, you might qualify for this deduction. If you’re salaried and exempt from overtime requirements, this probably doesn’t help you.
Your employer also needs to be able to track and report your overtime separately. Starting January 1, 2025, overtime has to show up separately on your W-2. Some employers are scrambling to update their payroll systems to handle this.
The IRS said they’ll provide “transition relief” for 2025 since the law passed halfway through the year and companies didn’t have time to prepare. What does that actually mean? Nobody knows yet because IRS guidance on no tax on overtime still hasn’t been finalized.
What You’ll Actually Save
H&R Block ran some numbers. If you’re a single filer making $80,000 total with $7,500 in overtime, you’ll save about $550 in federal taxes.
That’s not nothing. But it’s not life-changing either.
The Tax Policy Center estimates only about 9% of taxpayers will even qualify for this benefit. Either they don’t work overtime, they make too much money, or the standard deduction already wipes out their tax liability.
Here’s something most people don’t realize; if you’re a single person making less than $15,750 a year or a married couple making less than $31,500, you’re probably not paying federal income taxes anyway because of the standard deduction. So this overtime deduction does absolutely nothing for you.
The people who benefit most are middle-income workers who regularly put in overtime hours. Factory workers, nurses, and retail managers are the folks in that $40,000 to $100,000 range who work more than 40 hours a week.
No Tax on Overtime How Much Will I Get Back
Let’s walk through a real example. Say you’re single and made $50,000 in regular wages plus $8,000 in overtime this year.
Of that $8,000 in overtime, maybe $2,667 is the “extra” part that qualifies for the deduction. The rest is just your regular hourly rate.
You can deduct that $2,667 from your taxable income. If you’re in the 22% tax bracket, that saves you about $587 in federal taxes.
Not bad. But again, it’s nowhere near $8,000 in tax savings like some people might expect when they hear “no tax on overtime”.
And remember, you’re still paying Social Security and Medicare taxes on all your overtime. Those don’t go away. State and local taxes? Still apply too.
This is purely a federal income tax deduction. Nothing else.
What Employers Need to Do
Employers are supposed to track and report overtime separately starting January 1, 2025. Most will probably use Box 14 on the W-2 (the “Other” box) or provide a separate statement.
The IRS said they won’t penalize employers who mess up the reporting for 2025 since everyone’s still figuring this out. But starting in 2026, you better believe they’ll expect proper reporting.
Some employers might use a “safe harbor” rule for 2025 where they average your overtime from July through December to estimate your deduction. This is just to make the transition easier since the law didn’t pass until July.
If you work for a small company with basic payroll software, your boss might be pulling their hair out trying to comply with this. Bigger companies with fancy payroll systems? They’re probably fine.
What About Contractors and Gig Workers
Good question. The law doesn’t specifically say whether independent contractors can claim this deduction.
Everyone’s waiting for the IRS to clarify. If you’re a 1099 contractor who bills overtime hours, can you deduct the extra compensation? Nobody knows yet.
My guess? Probably not, since the law talks about W-2 employees and overtime as defined by the Fair Labor Standards Act. But we’ll see.
The Time Limit
This isn’t permanent. The deduction only lasts from 2025 through 2028.
After that, Congress would need to extend it or let it expire. Given how politics work, who knows what’ll happen?
Trump also pushed through “no tax on tips” at the same time, which works similarly. Both are temporary provisions that expire after 2028.
The Congressional Budget Office estimates the overtime deduction will cost about $89 billion over 10 years. Critics worry about the lost tax revenue. Supporters say it helps working Americans keep more of their hard-earned money.
How to Claim It
When you file your 2025 taxes in early 2026, you’ll claim the deduction on your Form 1040. The IRS will provide guidance on exactly where to put it, but it’ll probably be a line item somewhere in the deductions section.
You don’t have to itemize to claim this. Even if you take the standard deduction, you can still claim the overtime deduction on top of it.
Keep good records, though. Save your pay stubs showing overtime hours. Keep any statements your employer gives you. If the IRS audits you, you’ll need proof.
Starting in 2026 and beyond, some employers might adjust your withholding throughout the year so you get the benefit in each paycheck instead of waiting until you file taxes. But that depends on whether your payroll system can handle it.
Real Talk About This Law
Look, no tax on overtime sounds amazing when you first hear about it. Who doesn’t want to keep more of their paycheck?
But the reality is more complicated. The deduction only applies to part of your overtime pay. It has income limits. It’s temporary. And for many workers, especially those making under $40,000 or over $150,000, it won’t make much difference.
The Tax Policy Center ran estimates showing eligible workers will save about $1,400 on average. That’s decent money as it covers a car payment, helps with groceries, and maybe pays for a vacation.
But it’s not the windfall some people expected when Trump campaigned on this promise.
The other issue? Some critics worry this might encourage employers to rely more on overtime instead of hiring additional workers. Why hire two people when you can just work one person 60 hours a week?
Others point out the fairness question; why should overtime get a tax break but not regular wages? What about people who work multiple jobs to make ends meet but never qualify for overtime?
Valid concerns. But for now, this is the law we’ve got.
What You Should Do
First, talk to your employer. Ask how they’re tracking and reporting overtime for 2025. Make sure they know about the new requirements.
Second, keep detailed records of your overtime hours and pay. Don’t rely solely on your employer. If there’s a dispute later, you want your own documentation.
Third, when you file your 2025 taxes, work with a tax professional or use good tax software that’s been updated for the new law. This is the first year of implementation and there will be confusion.
Fourth, don’t count on this lasting forever. It expires after 2028. Plan your finances accordingly.
And finally, remember that this only helps if you actually work overtime. If you’re trying to decide whether to pick up extra shifts, don’t let the tax deduction be the only factor. Time with your family, your health, and your sanity matter too.
Yes, keeping an extra $50 or $100 per paycheck is nice. But don’t burn yourself out just to save a bit on taxes.
The Bottom Line
The One Big Beautiful Bill Act created a tax deduction for overtime pay from 2025 through 2028. It’s real, it’s law, and some workers will benefit.
But it’s not as generous as the campaign slogan suggested. Only the “extra” part of overtime qualifies. There are income limits. Many workers won’t benefit at all.
For middle-income hourly workers who regularly work overtime, this could save you $500 to $1,500 a year in federal taxes. That’s real money.
For everyone else? It’s either a small benefit or no benefit at all.
We’re still waiting on final IRS regulations to clear up the details. Expect some confusion and changes as everyone figures this out.
The tax filing season for 2025 income starts in January 2026. By then, hopefully, the IRS will have published clearer guidance and employers will have their reporting systems figured out.
Until then, keep working, keep tracking your hours, and keep your expectations realistic about how much this will actually save you.
