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You’ve probably heard the rumblings at work or seen the viral clips of Donald Trump promising a major break for hourly workers. The question is simple: did Trump sign the no tax on overtime legislation into law?
Yes, he did. But honestly, the "how" and "when" are where things get a bit messy for the average person trying to file their taxes right now.
On July 4, 2025, President Trump signed H.R. 1, officially known as the One Big Beautiful Bill Act (OBBBA). It wasn't just a campaign slogan; it became Public Law 119-21. While the name sounds like something out of a marketing pitch, the guts of the bill contain Section 70202, which specifically targets federal income tax on overtime pay.
The Reality of the No Tax on Overtime Law
Let’s get one thing straight: "no tax" doesn't mean your overtime check is suddenly 100% immune from the IRS. It’s actually structured as an above-the-line deduction. This means you can subtract a portion of your overtime earnings from your taxable income, even if you don't itemize your deductions.
There are some pretty strict "ifs" and "buts" attached to this.
First, this isn't permanent. The law is currently set to expire on December 31, 2028. If Congress doesn't renew it, we're back to the old way of doing things. Second, it only applies to federal income tax. You are still going to see Social Security and Medicare taxes (FICA) taken out of every single overtime hour you work.
Who Actually Gets the Break?
Basically, if you’re a non-exempt hourly worker covered by the Fair Labor Standards Act (FLSA), you’re in. If you’re a "white-collar" salaried employee who doesn't qualify for overtime anyway, this does zero for you.
The deduction has a ceiling.
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- Single filers: You can deduct up to $12,500 of qualified overtime pay.
- Married filing jointly: The cap jumps to $25,000.
If you're a high earner, the benefits start to vanish. The phase-out kicks in at a Modified Adjusted Gross Income (MAGI) of $150,000 for individuals and $300,000 for couples. For every $1,000 you earn over those limits, your deduction drops by $100. By the time an individual hits $275,000, the "no tax on overtime" benefit is totally gone.
The "Time-and-a-Half" Math
This part trips everyone up. You can't deduct your entire overtime check. The IRS only lets you deduct the "premium" portion.
Think of it this way. If you normally make $20 an hour and your overtime rate is $30 (time-and-a-half), only that extra **$10** is deductible. The base $20 is still taxed like regular income. If you're lucky enough to get double time ($40/hr), you still only get to deduct that same $10 premium required by federal law.
The IRS basically treats everything beyond your base hourly rate as the target for this deduction.
The 2025 Reporting Nightmare
Since the bill was signed mid-year in 2025, payroll companies were scrambling. They weren't required to track this "qualified overtime" separately on W-2s for the 2025 tax year.
If you're looking at your 2025 W-2 right now (in early 2026) and don't see a specific "overtime" box, don't panic. The IRS created a "safe harbor" rule for 2025. You can use a "reasonable method" to estimate your overtime, or in some cases, employers are allowed to use your hours from the second half of the year to calculate the whole year's deduction.
What You Need to Do Now
Don't leave money on the table just because the paperwork looks confusing. Honestly, most tax software like TurboTax or H&R Block has already updated their systems to handle Schedule 1-A, which is where this deduction usually lives.
- Dig up your old pay stubs. If your W-2 doesn't have a separate line for "Qualified Overtime Compensation," your year-end pay stub is your best friend.
- Check your MAGI. If you're close to that $150k or $300k limit, do the math to see if you even qualify for the full amount.
- Talk to your payroll department. For 2026, employers are required to report this separately. Make sure they’ve updated their software so your filing is easier next year.
- Don't forget state taxes. Just because Trump signed a federal law doesn't mean your state followed suit. Some states, like Wisconsin, have moved to match the federal break, but many haven't. You might still owe state income tax on every penny of that overtime.
Keep your records tight. The IRS is providing some leniency for 2025 because the law was passed so late, but that "grace period" won't last forever. If you're an hourly worker putting in the extra hours, this deduction could put an extra $1,000 to $3,000 back in your refund depending on your bracket—so it’s worth the 20 minutes of extra math.