Trump Getting Rid of Overtime Tax: What Most People Get Wrong

You’ve probably seen the headlines. Maybe you even cheered a little. The idea is simple: you work the extra hours, you keep the extra cash. No more watching the IRS gobble up a huge chunk of that time-and-a-half pay you stayed late for. Honestly, it sounds like a dream for anyone who has ever stared at a pay stub in disbelief after a 60-hour week.

But the reality of trump getting rid of overtime tax is a bit more tangled than the campaign trail slogans suggested.

Basically, we aren't looking at a total disappearance of taxes on your extra hours. It’s not like the IRS just hit "delete" on those earnings. Instead, what we actually got was the "One Big Beautiful Bill" (OBBBA), signed into law in July 2025. It creates a specific type of tax deduction. If you’re an hourly worker, this is a big deal, but you’ve gotta know how to actually claim it without getting tripped up by the fine print.

How the Overtime Tax Break Actually Works

The biggest misconception is that "no tax" means zero taxes. It doesn't.

What the law actually does is allow you to take a "below-the-line" deduction on your federal income tax return. You can deduct up to $12,500 of qualified overtime compensation if you’re filing single. If you’re married and filing jointly, that cap jumps to $25,000.

Here is the kicker: the deduction only applies to the "extra" part of your pay.

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Imagine you make $20 an hour. When you hit overtime, you get time-and-a-half, which is $30. Under these rules, you don't get to deduct the whole $30. You only get to deduct the $10 "premium"—that extra 0.5x on top of your base rate. If you’re lucky enough to get double time ($40), you still only deduct that $10 premium required by the Fair Labor Standards Act (FLSA).

It’s also temporary. This whole setup is scheduled to vanish after 2028 unless Congress decides to keep the party going. For now, it’s a four-year window starting with the 2025 tax year.

Who Is Actually Eligible?

Not every worker gets to play. This is strictly for people covered by the FLSA.

If you’re a "non-exempt" employee—the kind of person who gets a W-2 and clocks in—you’re likely in. If you’re a salaried manager who is "exempt" from overtime pay laws, you’re out of luck. You can't just call a bonus "overtime" to skip the taxes.

There are also some pretty firm income ceilings.

• Single Filers: The benefit starts to shrink once your Modified Adjusted Gross Income (MAGI) hits $150,000.
• Joint Filers: The phase-out starts at $300,000.

If you make $275,000 as a single person, the deduction is gone entirely. Sorta feels like the law is aimed squarely at the middle class, which is exactly what the Budget Lab at Yale pointed out in their 2026 analysis. They found that folks in the middle income brackets see the most savings—roughly $135 per return—while the very bottom and very top see almost nothing.

Also, don't forget the paperwork. You must have a valid Social Security number. If you’re married but file separately? No deduction for you.

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The Taxes You Still Have to Pay

This is the part that bums people out. "No tax" only refers to Federal Income Tax.

You still have to pay payroll taxes. That means Social Security (6.2%) and Medicare (1.45%) are still coming out of every single overtime dollar you earn. Your employer has to match those, too.

And then there's the state level. In late 2025, we saw a lot of friction between the Treasury and states like New York and Illinois. Since many states tie their tax codes to federal rules, they had to decide whether to allow this deduction or "decouple" and keep taxing that overtime. If you live in a state that didn't play ball, you might save on your federal return but still owe the full amount to your governor.

Tracking Your Pay for the 2026 Filing Season

Because this law was retroactive to January 1, 2025, the first time you’ll actually see the benefit is when you file your taxes in early 2026.

The IRS has been scrambling to get the forms ready. For the 2026 tax year, look at your W-2. There is a draft version where Box 12 uses a new code—"TT"—to report your total qualified overtime.

If your employer didn't track it perfectly in 2025, the IRS is allowing them to use "any reasonable method" to estimate it. But going forward, they need to be precise. You should keep your own pay stubs just in case. If your W-2 doesn't show the breakdown, you might have to calculate the deductible portion (that extra 0.5x) yourself using Schedule 1-A.

Economic Impacts: Is It Good or Bad?

Experts are split. Some say it’s a brilliant move to reward "effort." If you’re willing to bust your tail for 50 hours a week, why shouldn't you keep more of it?

On the flip side, groups like the Economic Policy Institute argue it’s a "gimmick" that encourages overwork. They worry that instead of giving people raises, companies will just push for more overtime because it’s "tax-free" for the worker. Plus, there is the deficit. The Joint Committee on Taxation estimates this will cost the government about $90 billion over the next few years.

Whether you love the policy or hate the politics, the money is there for the taking right now.

Actionable Steps to Claim Your Overtime Deduction

1. Audit your 2025 pay stubs. Don't wait for the W-2 to arrive. Calculate how many overtime hours you worked and what that "0.5x" premium added up to.
2. Check your MAGI. If you’re hovering around that $150,000 (single) or $300,000 (joint) mark, look into ways to lower your taxable income—like 401(k) contributions—so you don't lose the deduction to the phase-out.
3. Confirm your status. Make sure you are classified as "non-exempt" under the FLSA. If you're a contractor (1099), the rules are way more complex and generally don't apply the same way.
4. Look for "TT" in Box 12. When your W-2 arrives this month, check for that code. If it’s missing and you know you worked OT, talk to your HR department immediately.
5. Use Schedule 1-A. When you sit down with your tax software or CPA, ensure they are using the new Schedule 1-A to actually apply the deduction to your 1040.

This isn't an automatic "get out of taxes free" card, but for a factory worker or a nurse pulling double shifts, it’s a legitimate chunk of change that stays in the bank instead of going to Washington. Just make sure you're counting the right "half" of that time-and-a-half.