You've probably heard the catchphrase "No Tax on Overtime" bouncing around the news lately. It sounds simple. You work extra, you keep every penny of that extra pay, right? Honestly, it's a bit more complicated than the campaign rallies made it sound. With the One Big Beautiful Bill Act (OBBBA) officially signed into law on July 4, 2025, we’re now living in the reality of this policy.
It isn't a total "poof, taxes are gone" situation. It’s actually a specific tax deduction. Basically, the IRS isn't just ignoring your overtime; they're letting you subtract a chunk of it from your taxable income when you file.
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How the Trump No Tax on Overtime Law Actually Works
Let's talk turkey. The law, specifically Section 70202 of the OBBBA, creates an "above-the-line" deduction. This is great news because you don't need to itemize your taxes to get it. You can take the standard deduction and still claim this.
But here is the kicker: it only applies to the overtime premium.
If you make $20 an hour normally, your "time-and-a-half" rate is $30. Under this new law, you can’t deduct the whole $30. You can only deduct the "half" part—the extra $10. The first $20 of that hour is still taxed like normal income.
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The Fine Print You Need to Know
- The Cap: You can't just work 100 hours a week and pay zero tax. The deduction is capped at $12,500 for single filers and $25,000 for married couples filing jointly.
- Income Limits: If you're already making bank, you might get nothing. The benefit starts phasing out if your Modified Adjusted Gross Income (MAGI) hits $150,000 (or $300,000 for couples). For every $1,000 you earn over that, your deduction drops by $100.
- Payroll Taxes: This is a big one. You still have to pay Social Security and Medicare taxes (FICA) on every cent of overtime. The "no tax" part only refers to federal income tax.
Why Your 2025 Tax Refund Might Be Huge
Because the law was signed halfway through 2025 but made retroactive to January 1, 2025, most employers didn't stop withholding taxes from overtime checks last year. They couldn't. The systems weren't ready.
This means as you file your taxes in early 2026, you're likely sitting on a pile of overpaid taxes.
If you spent the first half of 2025 grinding out 50-hour weeks at a factory or a hospital, the government has been holding onto money that technically belongs to you now. You'll claim this on Schedule 1-A, a new form the IRS scrambled to release.
Is Every Worker Eligible?
Kinda, but not really. To qualify for the Trump no tax on overtime deduction, you must be a "non-exempt" employee under the Fair Labor Standards Act (FLSA).
What does that mean in plain English? If you're a salaried manager who doesn't get paid extra for staying late, you're out of luck. This is specifically for people who get paid by the hour and are legally required to receive time-and-a-half after 40 hours.
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What Doesn't Count:
- Double Time: If your boss pays you double time for working Christmas, the IRS only cares about the "time-and-a-half" minimum required by federal law. Anything extra is still fully taxable.
- State Taxes: Unless your specific state passed a matching law, you’ll probably still owe state income tax on those overtime hours.
- Married Filing Separately: If you and your spouse file separate returns, you are disqualified from the deduction entirely.
The "One Big Beautiful Bill" and the Midterms
Politically, this was the "marquee" legislation for the Trump administration heading into the 2026 midterms. It was designed to appeal directly to blue-collar workers in swing states like Pennsylvania and Michigan.
Some economists, like those at the Economic Policy Institute, have voiced concerns. They argue that making overtime tax-free might actually encourage employers to overwork staff instead of hiring new people. Others say it’s a much-needed break for families feeling the pinch of 2024’s inflation.
Practical Steps to Get Your Money
Don't just assume the IRS will do the math for you. You need to be proactive.
1. Check your W-2. For the 2026 tax season (covering 2025 income), look at Box 14. The IRS gave employers a "safe harbor" to report estimated overtime there since the law was passed late. For 2026 income, keep an eye out for Box 12 with Code TT.
2. Dig up your old pay stubs. If your employer didn't track the "overtime premium" separately in 2025, you might have to reconstruct it. Look for the "extra half" amount.
3. Adjust your W-4. If you plan on working a ton of overtime in 2026, you can actually update your W-4 with your employer so they withhold less tax now. That way, you get the money in your paycheck every week instead of waiting for a refund next year.
4. Watch the sunset. This law isn't forever. As it stands, the no tax on overtime provision is set to expire on December 31, 2028. Unless Congress acts to extend it, we go back to the old rules in 2029.
Honestly, the best thing you can do right now is check your total "qualified overtime compensation" for last year. If you're under the $150,000 income limit and worked significant hours, that deduction could be the difference between owing money and getting a several-thousand-dollar check back from Uncle Sam.