Is Trump Getting Rid of Overtime Tax? What Most People Get Wrong

If you’ve spent any time on a factory floor, in a hospital breakroom, or behind a retail counter lately, you’ve probably heard the buzz. People are talking about a massive change to their paychecks. The question on everyone's mind: Is Trump getting rid of overtime tax for real?

Honestly, the answer is a bit more nuanced than a simple "yes" or "no," but for millions of hourly workers, the news is actually pretty good. As of early 2026, the policy isn't just a campaign stump speech anymore. It’s written into law. But—and this is a big but—it doesn’t mean your taxes just vanished into thin air. There are caps, specific rules, and a whole lot of paperwork for your boss to figure out.

The One Big Beautiful Bill and Your Overtime Pay

Basically, the "no tax on overtime" promise became a reality through the One Big Beautiful Bill Act (OBBBA), which President Trump signed on July 4, 2025. It’s officially a thing now. This law created a new federal income tax deduction specifically for what it calls "qualified overtime compensation."

If you’re working more than 40 hours a week and getting that time-and-a-half pay, you’re likely eligible. The law is retroactive to January 1, 2025. This means when you’re sitting down to file your taxes right now in early 2026, you can actually claim this deduction for the hours you pulled last year.

How the "No Tax" Part Actually Works

Don't let the slogans fool you. It’s not that the IRS just ignores your overtime. Instead, the law allows you to deduct the extra money you earned from your taxable income.

📖 Related: TCPA Shadow Creek Ranch: What Homeowners and Marketers Keep Missing

Think of it this way:

• You earn $20 an hour normally.
• You work overtime and get $30 an hour (time-and-a-half).
• The "extra" $10 is the part that’s tax-free.

You still pay regular income tax on the base $20, but that extra $10 premium? You can deduct that so it doesn't count toward your federal income tax total. It’s an "above-the-line" deduction, so you don't even have to itemize your taxes to get it.

The Rules You Need to Know

Kinda like everything involving the government, there are strings attached. You can't just work 100 hours a week and expect the IRS to look the other way on all of it.

First, there’s a cap. You can deduct up to $12,500 of qualified overtime pay if you’re a single filer. If you’re married and filing jointly, that cap jumps to $25,000. If you’re a high-flyer earning a ton of overtime, anything above those limits is taxed just like it always was.

👉 See also: Starting Pay for Target: What Most People Get Wrong

Second, there’s the income limit. The deduction starts to phase out if your Modified Adjusted Gross Income (MAGI) hits $150,000 for individuals or $300,000 for joint filers. If you make way more than that, you might not see any benefit at all. It’s really designed for the blue-collar and middle-class folks who are out there grinding every day.

What About Social Security and Medicare?

This is where people get tripped up. The law gets rid of federal income tax on that overtime premium, but it does not get rid of payroll taxes. You’re still going to see Social Security and Medicare (FICA) taken out of every single dollar you earn, including the overtime.

Also, state taxes are a wildcard. Unless your specific state passed a law to match the federal one, you might still owe state income tax on every penny of that overtime.

Who Actually Qualifies?

Not everyone with a job is getting this break. To qualify, your overtime has to be "required" under the Fair Labor Standards Act (FLSA).

✨ Don't miss: Why the Old Spice Deodorant Advert Still Wins Over a Decade Later

• Hourly Workers: Most of you are good to go. If you get time-and-a-half for hours over 40, you’re the target audience.
• Salaried Non-Exempt: If you’re on a salary but still qualify for overtime pay, you’re in.
• The "Exempt" Crowd: If you’re a manager, a doctor, a lawyer, or a teacher who is "exempt" from overtime rules, you’re out of luck. Even if you work 60 hours a week, if you don't legally get "overtime pay" at a higher rate, there’s nothing for you to deduct.

Why Some People are Worried

While more money in the pocket sounds great, some economists are biting their nails. The Committee for a Responsible Federal Budget (CRFB) estimated that this could cost the government anywhere from $1.7 trillion to $6 trillion over a decade, depending on how many people switch to hourly jobs just to take advantage of the tax break.

There’s also the "health factor." Critics like the Economic Policy Institute (EPI) argue that making overtime tax-free just encourages people to work themselves to death. Instead of a 40-hour week being the standard, we might see a shift where everyone feels forced to work 50 or 60 hours just to stay competitive or keep their employer happy because the employer is also saving on the deal.

What Your Boss is Dealing With Right Now

Honestly, 2025 was a bit of a mess for HR departments. Since the law passed in July but was retroactive to January, most payroll systems weren't set up to track this stuff.

For the 2025 tax year (the ones you're filing now), the IRS gave employers a "grace period." They could use "any reasonable method" to estimate how much overtime you worked. But starting in 2026, the rules get strict. Your W-2 for 2026 will likely have a new code—drafts show code "TT" in Box 12—to specifically report your qualified overtime. If your boss messes this up, they could face fines of up to $680 per W-2.

Actionable Steps for Tax Season

If you're looking at your pay stubs and wondering how to actually get this money back, here is what you need to do right now:

• Check your W-2: Look for any mention of "qualified overtime" or check Box 14. If it's not there, ask your HR department for a summary of your 2025 overtime premiums.
• Use Schedule 1-A: When you file your federal return this year, you’ll likely need to fill out a new form, Schedule 1-A, to claim the deduction.
• Calculate the "Half": Remember, you only deduct the "half" in time-and-a-half. If you made $3,000 in total overtime pay at time-and-a-half, your deduction is $1,000 (the premium portion).
• Don't forget the cap: If your calculations show you earned $15,000 in overtime premiums, remember you can only claim $12,500 on your return.
• Check State Laws: Before you celebrate, verify if your state recognizes this deduction. You don't want a surprise bill from your state's Department of Revenue.