You've probably heard the buzz by now. It was a huge campaign promise, the kind that makes people sit up and look at their paychecks differently. We're talking about the idea that those grueling hours past 40 a week might finally be yours to keep, free and clear of the taxman. Well, it's not just a "maybe" anymore.
On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA). It’s a massive piece of legislation, often called the Working Families Tax Cut, and it actually did it. It created a path for workers to stop paying federal income tax on their overtime. But—and this is a big "but"—it’s not exactly a blanket "everything is free" situation. If you’re expecting your next check to suddenly jump by 30%, you need to look at the fine print.
Honestly, the way this works is a bit of a head-scratcher at first. It’s technically a deduction, not an automatic exclusion at the payroll level for everyone just yet.
The Reality of Will Trump Get Rid of Taxes on Overtime
So, let’s get into the weeds. The law is officially in effect, and it’s retroactive to January 1, 2025. That means when you file your taxes this year (early 2026), you can actually claim this.
Here is the kicker: it only applies to federal income tax. You still have to pay Social Security and Medicare taxes (FICA). Those aren't going anywhere. Your state might also still want its cut, depending on where you live. If you're in a place like Florida or Texas with no state income tax, you're golden. If you're in California or New York? You'll still be sending a slice of that overtime to the state capitol.
The "One Big Beautiful Bill" basically says you can deduct up to $12,500 of "qualified overtime compensation" if you’re single. If you’re married and filing together, that cap jumps to $25,000.
What counts as "Qualified"?
This is where people get tripped up. The law relies heavily on the Fair Labor Standards Act (FLSA). To qualify for the tax break:
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- You must be a non-exempt employee (usually hourly workers).
- The pay must be for hours worked over 40 in a week.
- Only the "premium" portion counts.
Think about it like this. If you make $20 an hour normally, your overtime pay is usually $30 (time-and-a-half). Under this new law, you don't get the whole $30 tax-free. You only get the extra $10—the "half" part of time-and-a-half—as a deduction. The base $20 is still taxed like normal.
It’s a bit of a bummer if you were expecting the whole chunk to be tax-free, but it’s still a significant win for anyone pulling 50 or 60 hours a week in a factory or a hospital.
Who Actually Benefits and Who Gets Left Out?
Not everyone is invited to this party. If you're a salaried manager making $100k a year and you stay late every night, you probably won't see a dime of this. Why? Because most salaried professionals are "exempt" under the FLSA. If your boss doesn't legally have to pay you overtime, the IRS isn't going to let you take the deduction.
There are also income limits. The government didn't want high-flying executives finding ways to categorize bonuses as "overtime" to skip taxes. The deduction starts to disappear (phase out) once your Modified Adjusted Gross Income (MAGI) hits:
- $150,000 for single filers.
- $300,000 for married couples.
If you earn more than that, the benefit shrinks by $100 for every $1,000 you're over the limit. If you're making $275,000 as a single person, the "no tax on overtime" dream is basically over for you.
How to Claim It in 2026
Since this just started, 2025 was a bit of a "transition year." Most employers weren't ready to change their payroll software overnight. This means your 2025 paychecks probably still had the taxes taken out.
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Don't panic. You get the money back when you file.
For the 2026 tax season, the IRS has introduced Schedule 1-A. This is the form where you'll list your qualified overtime. Your employer should be reporting this in Box 14 of your W-2 for this year, or potentially using a new code in Box 12 (look for code "TT" in future forms).
If your employer didn't break it out on your W-2 this time around—which happened a lot because the law was signed halfway through the year—the IRS is allowing "reasonable methods" to calculate it. Basically, you'll need to dig out those old paystubs and do some math.
The Math Breakdown (The "Simple" Way)
If you earned $10,000 in total overtime pay at a time-and-a-half rate:
- Divide that $10,000 by 3.
- The result ($3,333) is your "premium" portion.
- That $3,333 is what you deduct from your taxable income.
It’s not perfect, but it’s a start.
Is This Policy Here to Stay?
Everything in the "One Big Beautiful Bill" has a shelf life. As of right now, the tax-free overtime provision is set to expire on December 31, 2028.
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Lawmakers did this for a reason. It costs the Treasury a lot of money—roughly $90 billion over the next few years. By making it temporary, they keep the "official" cost of the bill lower on paper. Whether it gets extended depends entirely on who is in the White House and Congress in 2028.
Critics, like the Economic Policy Institute, argue this will just encourage employers to overwork their current staff instead of hiring new people. They worry about "burnout culture" becoming tax-subsidized. On the flip side, proponents argue that it rewards the "forgotten" workers—the ones who actually keep the country running through manual labor and long shifts.
Actionable Steps for Your Paycheck
If you’re someone who works a lot of extra hours, you need to be proactive. Waiting for the IRS to just "figure it out" is a recipe for losing money.
First, check your W-2. Look at Box 14. If there’s nothing there about "Qualified Overtime" or "OBBBA," talk to your HR department. They might need to provide you with a separate statement.
Second, keep your paystubs. If your employer's payroll system isn't updated, those stubs are your only proof. You'll need them to prove to the IRS that you actually worked those hours if you get flagged.
Third, adjust your withholdings. If you know you're going to get a massive deduction at the end of the year, you might be overpaying your taxes every month. Talk to a tax pro about updating your Form W-4. You could potentially see more of that money in your pocket every Friday instead of waiting for a refund next year.
The "will Trump get rid of taxes on overtime" question has been answered with a "Yes, but with rules." It's a game-changer for blue-collar America, provided you know how to play by the new handbook. Keep an eye on your income levels and make sure your paperwork is tight. This is your money; don't leave it on the table.