You've probably heard the buzz. It was a massive campaign promise that felt like a fever dream to anyone who has ever stared at their paycheck and wondered why the government takes a bigger bite just because they stayed late on a Friday. Well, the "One Big Beautiful Bill" (OBBB) is officially reality. If you are asking when is no tax on overtime supposed to start, the answer is actually: it already has.
Technically, the clock started ticking on January 1, 2025.
But don't expect your weekly take-home pay to suddenly skyrocket without you doing anything. This isn't a direct "tax holiday" where the IRS just stops looking at your overtime hours. It's a deduction. That sounds like boring accounting jargon, but it’s the difference between getting a slightly bigger check now or a much bigger refund later. Because the bill was signed by President Trump on July 4, 2025, it applies retroactively to every hour of overtime you worked since the very first day of last year.
The Reality of the Overtime Tax Break
Honestly, the "no tax" part is a bit of a marketing stretch. It’s more like "less tax" for most people. The law—officially known as the Working Families Tax Cut Act—allows you to deduct qualified overtime pay from your federal income tax.
Here is the kicker: it only covers the "extra" part of your pay. If you make $20 an hour and get "time-and-a-half" for overtime, you're making $30 an hour. The IRS only lets you deduct that extra $10. Your base $20 is still taxed exactly like it always was.
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It’s a bit of a bummer, but that’s how the math works in the final version of the bill.
Who actually gets the money?
Not everyone is invited to this party. You have to be a "non-exempt" employee. Basically, if you’re a salaried manager who doesn't get extra pay for 60-hour weeks, this bill doesn't help you at all. It’s designed for the hourly workers—the people in warehouses, hospitals, and construction sites who are covered by the Fair Labor Standards Act (FLSA).
- Income Limits: If you're single and making over $150,000, or married filing jointly and making over $300,000, the benefit starts to vanish.
- The Phase-Out: For every $1,000 you earn over those limits, the deduction drops by $100. It’s a sliding scale.
- Maximum Amount: You can’t just work 3,000 hours of overtime and pay zero taxes. The deduction is capped at $12,500 for individuals and $25,000 for married couples.
When Is No Tax On Overtime Supposed To Start For Your Paycheck?
This is where it gets messy. Even though the law is active, 2025 was a "transition year." Most employers didn't have their payroll systems updated in time because the bill wasn't signed until halfway through the year.
Because of that, the IRS gave companies a "safe harbor" rule. For the 2025 tax year, your employer wasn't strictly required to break out your overtime premium on your W-2. They could just give you a "reasonable estimate."
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What this means for you right now (January 2026):
You are likely sitting on your 2025 tax documents. You might notice a new code on your W-2. If your employer was on top of things, look for Box 12 with a code "TT." That stands for the qualified overtime compensation. If it’s not there, you might have to look at your final pay stub from December and do some manual math to claim the deduction on Schedule 1-A.
Starting now, in 2026, the rules get stricter. Employers are now required to track this stuff separately. So, for the money you are earning this week, the records should be much cleaner when you file next year.
Why This Isn't a Permanent Change
Don't get too comfortable. This whole "no tax on overtime" experiment has an expiration date. Just like the original TCJA provisions, this is a temporary fix. As of right now, the deduction is set to vanish on December 31, 2028.
There is already talk in Congress about extending it, but that's a political battle for another day. For now, you have a four-year window to maximize this.
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The Payroll Tax Trap
One thing people keep missing is Social Security and Medicare. The "One Big Beautiful Bill" only touches federal income tax. You still have to pay your 6.2% for Social Security and 1.45% for Medicare on every single cent of that overtime. Your employer has to pay their share, too.
Basically, the "half" in time-and-a-half is free from the IRS income tax bracket, but the "FICA" taxes are still coming for their cut.
Actionable Steps to Get Your Money
If you’ve been working extra hours and want to make sure you actually see the benefit of the overtime tax exemption, you need to be proactive this tax season.
- Check your 2025 W-2: Look specifically for any mentions of "Qualified Overtime" or code "TT." If it’s missing, contact your HR department and ask for a summary of your 2025 overtime premiums.
- Use the White House Calculator: The administration released an official tool to help you estimate your savings based on your state and income level. It’s a good way to see if your tax software is giving you the right numbers.
- Don't File "Married Filing Separately": This is a huge trap. The law explicitly bans people using this filing status from taking the overtime deduction. If you and your spouse usually file separately, you might want to run the numbers on a joint return this year.
- Update your W-4: If you plan on working a ton of overtime in 2026, you can actually adjust your withholdings now. The IRS updated Form W-4 (specifically section 1b) so you can tell your employer to take out less tax throughout the year rather than waiting for a big refund in 2027.
The bottom line is that the "no tax on overtime" era has begun, but it requires a little bit of homework to make sure the IRS doesn't keep the money that's legally yours.