If you’ve spent any time on a factory floor, in a hospital hallway, or behind the wheel of a delivery truck lately, you’ve probably heard the rumor. People are talking. There’s this idea floating around that the extra hours you grind out—the ones that keep you away from your family and burn you out—might finally be yours to keep. The big question everyone is asking is: is Trump going to stop taxes on overtime for real?
Honestly, the answer is a bit more complicated than a simple "yes" or "no." It's one of those classic "read the fine print" situations. While the headlines make it sound like the IRS is just going to stop looking at your time-and-a-half pay, the reality on the ground in early 2026 is a mix of new legislation, specific limits, and a whole lot of paperwork for your boss.
The Big Beautiful Bill and Your Paycheck
Last July, specifically on July 4, 2025, the "One Big Beautiful Bill Act" (OBBBA) was signed into law. This wasn't just another tax tweak; it was the administration's flagship move to follow through on campaign promises. It basically introduced a federal income tax deduction for what the government calls "qualified overtime compensation."
But here’s the kicker: it doesn't just "stop" the taxes. Instead, it creates a way for you to claw that money back when you file your return.
For the 2025 tax year—the one you’re likely preparing to file for right now in early 2026—this is officially live. If you worked overtime last year, you are looking at a potential "above-the-line" deduction. That’s tax-speak for a deduction you get even if you don't itemize your receipts.
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How much can you actually keep?
Let's get into the weeds for a second because the "no tax" part is kinda misleading. The law doesn't make the whole overtime check tax-free. It only applies to the "premium" part of your pay.
Imagine you make $20 an hour. When you hit overtime, you get $30. Under these rules, the $20 base is still taxed like normal. It's only that extra $10—the "half" in time-and-a-half—that qualifies for the deduction.
- The Cap: Single filers can deduct up to $12,500 of that premium pay. If you’re married and filing together, that number jumps to $25,000.
- The Income Limit: If you’re making the big bucks, you might be out of luck. The benefit starts to disappear (phase out) once your Modified Adjusted Gross Income (MAGI) hits $150,000 for individuals or $300,000 for couples.
- The Payroll Catch: This is the part that bites. Even if you don't owe income tax on that extra money, you still have to pay Social Security and Medicare taxes (FICA). Your employer does, too. So, your take-home pay won't increase by the full amount of the tax; it just gets a significant haircut.
Is Trump Going to Stop Taxes on Overtime Permanently?
Not exactly. This whole setup has an expiration date. As of right now, the provisions in the One Big Beautiful Bill are temporary. They are scheduled to vanish into thin air after December 31, 2028.
Why? It’s usually about the budget.
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The Congressional Budget Office and groups like the Tax Policy Center have pointed out that this isn't cheap. Estimates suggest this overtime break alone could cost the federal government around $89 billion over a decade if it stayed on the books. By making it temporary, it's easier to pass through Congress without breaking every budget rule in existence.
Who actually qualifies for the break?
You can’t just work a few extra hours and claim it. To get the deduction, your overtime has to be "qualified." That means it must be required under the Fair Labor Standards Act (FLSA).
- W-2 Employees only: Sorry, 1099 contractors and freelancers, this isn't for you.
- The 40-Hour Rule: Generally, this applies to hours worked over the standard 40-hour workweek.
- No "Gaming" the System: The IRS is already watching for companies that try to relabel regular wages as "overtime" just to save their employees some tax money. They’ve issued warnings that "reasonable methods" must be used to track these hours.
The State Tax Headache
Here is something most people forget: the federal government doesn't control your state.
Just because the IRS says your overtime premium is deductible doesn't mean your state's revenue department agrees. We’re already seeing a bit of a "tax war" in 2026. Treasury Secretary Scott Bessent recently called out several states for refusing to "conform" to these new federal rules.
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If you live in a state that hasn't updated its tax code to match the OBBBA, you might find yourself in a weird spot where you don't owe federal tax on that overtime, but your state still wants its cut. It’s messy. It’s confusing. It’s basically exactly what you’d expect from a major tax overhaul.
What You Should Do Right Now
If you’re sitting there wondering how this affects your bank account this month, there are a few practical steps you need to take.
First, check your W-2. For the 2025 tax year, employers are required to report "qualified overtime compensation" separately. If it’s not there, or if the number looks wrong, talk to your HR department immediately. They might be using the "transition relief" rules the IRS provided for the first year of the program, which allowed for some approximation.
Second, don't change your withholdings yet without talking to a pro. Because this is a deduction and not a total exemption from all taxes (remember those Social Security taxes?), you don't want to end up underpaying and getting hit with a penalty next year.
Next steps for you:
- Collect your pay stubs: Look for "OT Premium" or similar labels to estimate your potential deduction.
- Check your state's status: Search for your state’s name plus "conformity to One Big Beautiful Bill" to see if you’ll owe state taxes on that money.
- Review Schedule 1-A: This is the new form the IRS released specifically for claiming the overtime and tips deductions. Familiarize yourself with it before you sit down to file.