Everyone wants to keep more of their paycheck. It is a universal feeling. You put in sixty hours a week, your back aches, your eyes are blurry from the screen, and then you see it. The tax man took a massive chunk of that extra effort. It feels like you're being punished for working hard. That is exactly why the conversation around when does no taxes on overtime start has exploded lately. People are tired. They want to know if the rules have actually changed or if it is just more political noise.
Honestly, the answer depends entirely on where you live and which "plan" you are following. There isn't one single date for everyone.
The Alabama Precedent and Why It Matters
Alabama actually did it. They are the ones who kicked this whole thing off in a real, legislative way. Back in 2023, the state passed a law that officially exempted overtime pay from state income tax. This started on January 1, 2024. If you are an hourly worker in Birmingham or Mobile and you cross that 40-hour threshold, the state isn't touching that extra money.
It was a huge deal. It still is.
But there is a catch. It is currently set to expire in June 2025 unless the legislature decides to keep it going. They wanted to see if it actually helped businesses find workers or if it just drained the state budget. Early reports suggest people love it, obviously, but the data on "labor participation" is still a bit murky. Other states are watching Alabama like hawks. They want to see if the gamble pays off before they try it themselves.
The Federal Level: Promises versus Reality
Now, if you are asking when does no taxes on overtime start on your federal 1040 form, the answer is: it hasn't. Not yet.
During the 2024 election cycle, the idea of "no tax on overtime" became a massive campaign pillar. It sounds great on a bumper sticker. It sounds even better when you're standing in a factory at 6:00 AM. The proposal, largely pushed by the Trump campaign and later discussed in various bipartisan circles, suggests that the IRS should simply stop taxing anything earned over 40 hours a week.
If this were to pass into law in 2026, it would require an act of Congress. It isn't an executive order thing. You can't just wave a magic wand. We are looking at a massive overhaul of the tax code. If the current administration pushes this through, the earliest we would likely see a "start date" for federal overtime tax exemptions would be January 1, 2027.
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Why so late? Because payroll systems are ancient.
Companies like ADP and Paychex need months, sometimes a year, to recode their software to handle different tax rates for different hours worked by the same person. It is a logistical nightmare.
The Math Problem Nobody Talks About
Let’s get real for a second. If the federal government stops taxing overtime, what happens to Social Security?
Usually, when we talk about "taxes," we mean federal income tax. But you also pay FICA. That’s your 6.2% for Social Security and 1.45% for Medicare. If we stop taxing overtime, do we stop collecting those too? If we do, your future retirement check might actually be smaller. If we don’t, then "tax-free" isn't really tax-free; it's just "income-tax-free."
Economists at places like the Tax Foundation have pointed out that this could create a weird incentive. Employers might stop hiring new people and just force everyone to work 80 hours because the labor is "cheaper" without the tax burden. Or, people might try to game the system by shifting their regular pay into "overtime" buckets. It gets messy fast.
State-Level Momentum in 2026
While the feds argue, states are moving.
- South Carolina: There have been heated debates in the State House about following the Alabama model.
- Georgia: Several representatives have floated "Overtime Relief" bills.
- Tennessee: Since they don't have an income tax anyway, this is a moot point, which is why everyone is moving there.
In states that do have income tax, the "start date" is usually tied to the beginning of a fiscal year or a calendar year. If your state passes a law in March, don't expect to see it on your check until the following January.
What You Should Do Right Now
Since when does no taxes on overtime start is still a moving target for most Americans, you can't just spend money you don't have yet. You have to play the game with the current rules.
First, check your paystub. Really look at it. Are you being taxed at a higher "marginal" rate because your overtime pushed you into a new bracket? A lot of people think their whole check is taxed higher when they work OT. It isn't. Only the money in that higher bracket is taxed at the higher rate.
Second, if you live in Alabama, make sure your employer is actually following the law. Some small businesses haven't updated their systems and are still withholding state tax on OT by mistake. You can get that back, but you have to file for it.
Third, stay tuned to the 2026 legislative sessions. This is the year where many of those campaign promises from 2024 and 2025 either become law or die in committee.
Breaking Down the "No Tax" Tiers
If a federal "No Tax on Overtime" law eventually kicks in, it will likely follow one of three paths:
- The Full Exemption: All pay over 40 hours is 100% tax-free. (Unlikely, too expensive).
- The Income-Tax-Only Exemption: You still pay Social Security/Medicare, but no federal income tax on OT. (Most likely).
- The Capped Exemption: Only the first $10,000 of overtime per year is tax-free. (The "middle ground" politicians love).
Basically, don't go out and buy a new truck assuming your overtime will be tax-free by mid-summer. Washington moves slow. States move slightly faster. Your best bet is to track the "Tax Cuts and Jobs Act" (TCJA) expirations. Many current tax breaks expire at the end of 2025, so 2026 is going to be the "Year of the Tax Overhaul."
Actionable Steps for Workers
Keep your records tight. If a law passes mid-year and is retroactive—which happens sometimes—you will need every paystub to prove what you are owed.
Don't rely on your HR department to be experts. They are often just as confused as you are. Use tools like the IRS Tax Withholding Estimator every few months to see if you're on track. If you're working a ton of overtime, you might actually be over-withholding, meaning you're giving the government an interest-free loan until next April.
Watch the news for "Budget Reconciliation" updates. That is the boring technical term for how these tax changes actually get passed through Congress without needing 60 votes in the Senate. If you hear that term, pay attention. That is when the real start dates get set in stone.
Ultimately, the dream of keeping every cent of that time-and-a-half is closer than it was five years ago, but for 90% of the country, the start date is still "to be determined."
Next Steps for You:
Check your state's current legislative docket for "Overtime Tax" bills. If you're in a state with a high income tax like California or New York, these changes are less likely to happen quickly compared to "business-friendly" states in the South and Midwest. Check your last three paystubs to calculate exactly how much federal tax is coming out of your overtime specifically—you might find that a "No Tax" law would save you significantly more than a standard raises would.