If you've been grinding out extra hours just to see a massive chunk of your overtime check disappear into the federal vacuum, things finally changed. Honestly, the headlines have been a bit of a mess. You’ve probably heard "No Tax on Overtime" shouted from campaign rallies or seen it scrolling through your feed, but the reality is a little more technical than a simple "delete" button on your taxes.
The short answer? It’s already here.
Technically, the when will no taxes on overtime start question was answered on July 4, 2025. That’s when the "One Big Beautiful Bill Act" (OBBBA) was signed into law. But since the law was made retroactive, it actually applies to all qualified overtime you earned starting January 1, 2025.
If you worked a double shift last February, that money is covered.
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The $12,500 Catch
Don't go planning a retirement on a private island just yet. This isn't an unlimited "get out of taxes free" card. The IRS has capped this thing. If you’re filing solo, you can deduct up to $12,500 of your qualified overtime pay. If you’re married and filing together, that number jumps to $25,000.
Wait, what does "qualified" mean? This is where it gets kind of picky.
The law follows the Fair Labor Standards Act (FLSA) rules. Basically, we’re talking about the "time-and-a-half" pay you get for working more than 40 hours in a week. If your boss just gives you a flat bonus for staying late, or if you’re a high-level manager who doesn't qualify for hourly overtime, you’re likely out of luck.
Also—and this is a big one—you aren't exempt from all taxes. You still have to pay:
- Social Security taxes (the 6.2% chunk).
- Medicare taxes (the 1.45% chunk).
- State and local taxes (depending on where you live).
The "no tax" part only refers to Federal Income Tax.
How do you actually get the money?
Since we're currently in January 2026, you're likely getting ready to file your 2025 taxes. This is the first time anyone will actually see the benefit in their bank account or as a reduced tax bill.
Because the law passed midway through last year, most employers didn't have their payroll systems updated in real-time. You probably still saw federal withholding coming out of your overtime hours all through 2025. That's okay. You'll claim the deduction on your Form 1040 this spring.
"For 2025, there’s a transition rule. Employers can basically use any 'reasonable method' to estimate what you earned in overtime since the paperwork wasn't ready on day one." — IRS Transition Guidance, 2025.
Looking forward into 2026, the IRS has already started messing with the paperwork. They released a draft W-2 for the 2026 tax year that includes a specific spot—Box 12, Code TT—to report your overtime pay separately. This will make it much easier for software like TurboTax or H&R Block to automatically apply the break.
When Will No Taxes on Overtime Start for High Earners?
There is a "wealth ceiling" on this perk. If you’re making the big bucks, the government starts clawing the benefit back.
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The phase-out starts once your Modified Adjusted Gross Income (MAGI) hits $150,000 for single people or $300,000 for joint filers. For every $1,000 you earn over that limit, the IRS trims $100 off your potential deduction. If you’re a single person making over **$275,000**, the deduction hits zero.
It’s designed for the middle class. Think construction workers, nurses, retail managers, and factory crews.
Does it end?
Nothing in the tax code is forever. This provision is currently a "sunset" law. It’s set to expire on December 31, 2028.
Unless Congress votes to extend it, your 2029 overtime will go right back to being fully taxed. There’s already a lot of arguing in Washington about the cost—some estimates say it'll blow a $90 billion hole in the budget over the next few years.
What You Should Do Right Now
- Check your 2025 pay stubs. Don't just trust that your W-2 will be perfect this year. Some employers might struggle with the "retroactive" math.
- Save your records. If you have a log of your hours or a separate line item for "OT" on your stubs, keep those digital copies.
- Talk to your payroll department. Ask them if they are using the new Box 12 Code TT for 2026 so your withholding is more accurate this year.
- Adjust your W-4. If you know you're going to get this big deduction at the end of the year, you might be able to lower your withholding now and keep more money in each paycheck instead of waiting for a refund.
Basically, the era of tax-free (federal) overtime is officially live. It’s a huge shift in how we think about work-life balance, even if the "half" part of your "time-and-a-half" is the only piece getting the break. Keep an eye on your MAGI thresholds and make sure your employer is actually tracking those extra hours correctly for the IRS.
Review your final pay stub from December 2025 to see exactly how much qualified overtime pay you accumulated, as this will be the figure you need to input for your first-ever overtime deduction this tax season.