You’ve probably heard the buzz by now. During the campaign, it sounded like one of those "too good to be true" promises, but it’s actually happening. People are asking me constantly: when will trump’s no tax on overtime start? The short answer is it already has. Well, technically.
President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4, 2025. It was a pretty dramatic scene, honestly. But here is the kicker for your wallet: the "no tax on overtime" provision is retroactive to January 1, 2025.
That means if you’ve been grinding out extra hours since the start of last year, you’re already sitting on potential tax savings. You won’t see that money as a "tax-free" paycheck right away, though. It’s handled as a deduction when you file your federal income tax return. Since it's currently January 2026, you are likely getting ready to file for the 2025 tax year. That is when you’ll finally see the benefit of the when will trump’s no tax on overtime start timeline.
How the Overtime Tax Break Actually Works
Don't let the "no tax" headline fool you into thinking the IRS is just ignoring your overtime pay. It’s a bit more nuanced than that. Basically, the law allows you to take an "above-the-line" deduction for what they call qualified overtime compensation.
Think of it this way: you still get taxed on your regular hours, but a chunk of that "time-and-a-half" premium is essentially erased from your taxable income when you file.
- The Cap: You can deduct up to $12,500 of overtime pay if you’re a single filer.
- Joint Filers: If you’re married and filing jointly, that cap jumps to $25,000.
- Income Limits: There is a phase-out. If you’re making more than $150,000 (or $300,000 for couples), the benefit starts to shrink.
- The "Half" Rule: Only the "extra" part of your overtime counts. If your regular rate is $20 and you get $30 for overtime, only that extra $10 is deductible.
It’s a bit of a headache for payroll departments, to be honest. Your employer has to track this specifically. For the 2025 tax year, the IRS gave companies a bit of a break, allowing them to "approximate" the amounts because the law was signed halfway through the year. But for 2026, they’re getting stricter.
The FLSA Requirement: Not All Overtime Is Equal
Here is a detail most people miss. To get the deduction, your overtime has to be required under Section 7 of the Fair Labor Standards Act (FLSA).
What does that mean in plain English? It means if you’re a "non-exempt" employee—the kind of worker who legally must be paid time-and-a-half after 40 hours—you’re likely golden. But if you’re a salaried manager who works 50 hours a week and your boss gives you a "bonus" for the extra work, that might not qualify.
Also, if you get overtime because of a private contract or a union agreement that goes above what federal law requires, that extra bit might not be deductible. It’s specifically tied to the federal FLSA mandate. It's kinda technical, but it prevents companies from just relabeling regular salary as "overtime" to dodge taxes.
What About Social Security and Medicare?
This is the part that bums people out. The "no tax" only applies to federal income tax.
You still have to pay FICA taxes. That means Social Security and Medicare (about 7.65%) are still coming out of your overtime pay. Your employer still has to pay their share, too. The government wasn't about to let the Social Security trust fund take a hit for this.
Also, keep an eye on your state. While the federal government is giving you this break, not every state has followed suit. Some states, like Wisconsin, have been moving to match the federal law, but if you live in a state that doesn't "couple" its tax code with the federal one, you might still owe state income tax on every penny of that overtime.
The Timeline: 2025 to 2028
The OBBBA isn't permanent. As of right now, the when will trump’s no tax on overtime start clock is set to stop on December 31, 2028.
- 2025: Retroactive start. You claim it on the taxes you file in early 2026.
- 2026: Full year of implementation. Employers use new Box 12 codes (look for code "TT" on your W-2).
- 2027: Continued benefit.
- 2028: The current expiration date.
Unless Congress votes to extend it, the sun sets on this tax break in 2029. Politicians usually like to extend popular tax cuts right before an election, so we'll see how that play out.
Action Steps for Your 2025 Taxes
Since you’re likely looking at your 2025 W-2s right now, here is what you need to do to actually get the money.
First, check your W-2. Your employer should have a line item for "Qualified Overtime Compensation." If they don't, you need to talk to HR immediately. Because the law was signed in July 2025, some smaller shops might have missed the memo on retroactive tracking.
👉 See also: 100000 Zimbabwe Dollar to USD: What Most People Get Wrong
Second, don't forget that you don't have to itemize. This is an "above-the-line" deduction, meaning you get it even if you take the standard deduction. It’s basically a freebie for anyone who worked the hours.
Lastly, if you're an independent contractor or 1099 worker, things are much murkier. The law is really designed for W-2 employees. If you’re self-employed, you usually don't have "overtime" in the legal sense, so this specific break might not apply to you.
Gather your pay stubs from the first half of 2025 just in case your employer's "approximation" seems off. You'll want to be able to prove those hours if the IRS comes knocking.
Next Steps:
Check your most recent pay stub or the W-2 you just received for a section labeled "Qualified Overtime" or "Code TT". If it's missing and you know you worked more than 40 hours a week in 2025, contact your payroll department to ensure they are reporting those hours correctly under the new OBBBA guidelines before you file your taxes this spring.