So, you’re looking at your paycheck after a grueling sixty-hour week and wondering where all that extra cash went. We've all been there. You bust your tail, clock the extra hours, and then see the IRS take a giant bite out of the "time-and-a-half" you earned. For a long time, there was a lot of chatter about whether this was going to change. Specifically, people keep asking: did trump take away taxes on overtime or was that just more campaign trail noise?
Honestly, the answer is a bit more complicated than a simple yes or no, but here is the ground reality as of early 2026.
Last year, on July 4, 2025, President Trump signed what he calls the "One Big Beautiful Bill" (OBBBA). It wasn't just a catchy name; it was a massive piece of legislation that actually pulled the trigger on several of those 2024 campaign promises. Among the fine print was a provision that fundamentally changed how overtime is taxed in America—at least for the next few years.
The Reality of "No Tax on Overtime"
If you’re expecting to never see a tax deduction on your overtime hours again, I’ve got to level with you: that’s not quite how it works. The law didn't just delete overtime taxes from existence. Instead, it created a specific federal income tax deduction for what they call "qualified overtime compensation."
Think of it as a specialized shield for a portion of your extra earnings.
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Starting with the 2025 tax year—meaning the returns you are likely filing right now in early 2026—you can deduct up to $12,500 of your overtime pay if you’re a single filer. If you’re married and filing together, that number jumps to $25,000. It’s a significant chunk of change, but it isn't an unlimited free pass.
Only the "Extra" Half Counts
Here is where people get tripped up. The deduction only applies to the "premium" part of your overtime. Let's say your regular rate is $30 an hour. When you hit overtime, you’re usually making "time-and-a-half," or $45 an hour.
The IRS doesn't let you deduct the full $45. You can only deduct the $15 "half" that makes it overtime. Basically, the government still wants their cut of your base rate; they’re just taking their hands off the extra bonus you get for working late.
Who Actually Qualifies?
Not every worker in America gets to use this. This isn't for the CEO who stays late at the office or the lawyer billing 80 hours a week. To qualify for the did trump take away taxes on overtime benefit, you have to meet a few strict criteria:
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- FLSA Status: You must be a non-exempt worker under the Fair Labor Standards Act (FLSA). This usually means hourly workers or salaried employees making below a certain threshold.
- Income Caps: This is meant for the middle class. The deduction starts to phase out once you hit a Modified Adjusted Gross Income (MAGI) of $150,000 for single folks or $300,000 for joint filers. If you make way more than that, the benefit slowly disappears until it hits zero.
- W-2 Reporting: Your employer has to track this. For the 2026 tax year, the IRS even introduced a new code—Code TT—for Box 12 on your W-2. If your boss doesn't report it correctly, claiming the deduction becomes a nightmare.
The Payroll Tax Catch
Kinda like that "No Tax on Tips" policy that rolled out alongside this, there is a big "but" involved. This law only touches federal income tax.
You are still going to see Social Security and Medicare taxes (FICA) coming out of every single overtime dollar. The government wasn't ready to starve the Social Security trust fund just yet. Plus, depending on where you live, your state might still want its piece of the pie. Some states have followed the federal lead, but many have not. You’ve basically got to check your local rules or talk to a local pro.
[Image showing a sample pay stub with federal income tax removed from overtime but FICA taxes still applied]
Why Some Workers Aren't Feeling the Change
It’s a bit ironic, but some of the people this was supposed to help the most aren't seeing a difference. Why? Because of the Standard Deduction.
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Trump’s previous tax changes already made the standard deduction so high that many low-income workers already pay $0 in federal income tax. If you already owe $0, a new deduction doesn't actually lower your bill. You can’t go below zero into "the government owes me for working" territory (unless you qualify for refundable credits like the Child Tax Credit).
How to Handle This on Your 2026 Taxes
Since we are in the middle of tax season, you need to know how to actually claim this. Don't just assume the IRS will "know" you worked overtime.
First, grab your W-2. Look for that Box 12. If you see "TT" followed by a dollar amount, that’s your golden ticket. You'll likely need to fill out Schedule 1-A, which is a new form specifically designed for these types of deductions.
If your employer didn't use the new code because they were still "transitioning" (the law gave them some leeway in late 2025), you might need to dig through your final pay stubs of the year to calculate the "premium" portion of your overtime yourself. It's a bit of a headache, honestly.
Actionable Steps for Workers
If you’re clocking extra hours and want to make sure you’re getting the most out of the did trump take away taxes on overtime legislation, do these three things right now:
- Audit Your W-2: Make sure your employer actually separated your "qualified overtime" into Box 12. If they lumped it all into Box 1 (total wages), you're going to pay more tax than you should.
- Adjust Your Withholding: If you’re planning on working massive overtime in 2026, go to your HR portal and update your Form W-4. You can actually tell the system you expect this deduction, which means more money in your Friday paycheck rather than waiting for a refund next year.
- Check State Laws: Use a tool or a quick search to see if your specific state (like Florida, Texas, or New York) has decoupled from the federal rules. You might owe state tax on that overtime even if the feds stay away.
The "No Tax on Overtime" policy is currently set to expire on December 31, 2028. Whether it stays or goes after that depends entirely on who is sitting in the Oval Office and Congress a few years from now. For now, it’s a temporary win for the hourly grind, provided you know how to navigate the paperwork.