In a major move hailed by working-class Americans, President Donald Trump signed the “One Big Beautiful Bill” into law on July 4, 2025. One of its most talked-about features is the “No Tax on Overtime” provision, a tax break that eliminates federal income taxes on qualified overtime pay for millions of workers across the U.S.
This long-promised tax cut delivers real relief for hourly workers and could mean thousands of dollars in annual tax savings. But it’s not for everyone—and the benefits vary depending on your income level and work classification.
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What Is the “No Tax on Overtime” Provision?
The “No Tax on Overtime” provision is a new federal income tax deduction for workers who put in extra hours. It allows eligible workers to deduct a portion of their overtime pay from their taxable income when filing their 2025 federal tax return in early 2026.
How Much Can You Deduct?
| Filing Status | Maximum Deduction |
|---|---|
| Single | Up to $12,500 |
| Married Filing Jointly | Up to $25,000 |
This is an “above-the-line” deduction, which means you can claim it even if you don’t itemize your deductions. It reduces your adjusted gross income (AGI), potentially lowering your tax bracket and increasing your refund.
When Does the No Tax on Overtime Start?
- Starts: Income earned from January 1, 2025
- Ends: December 31, 2028 (unless extended by Congress)
You won’t see a change in your paycheck right away. Taxes will still be withheld as usual throughout the year. But when you file your taxes in 2026, you’ll be able to claim the deduction and receive the benefit via a larger refund or lower tax bill.
Who Qualifies for the Trump Overtime Tax Break?
Not every worker is eligible. The deduction is strictly limited to certain types of overtime pay.
Qualifying Criteria:
FLSA-Required Overtime Only:
- Applies to overtime pay required by the federal Fair Labor Standards Act (FLSA)
- Typically includes time-and-a-half for hours over 40 per week
- State or union-only overtime rules do NOT qualify
Hourly & Non-Exempt Workers:
- Must be classified as non-exempt employees (usually hourly workers)
- Salaried exempt employees, like most managers or professionals, do not qualify
Income Limits Apply:
| Filing Status | Deduction Begins to Phase Out | Fully Phases Out At |
|---|---|---|
| Single | $150,000 MAGI | $275,000 MAGI |
| Married Joint | $300,000 MAGI | $550,000 MAGI |
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How Much Can You Save?
According to estimates:
- Average tax cut: Around $1,800 per year
- Maximum savings: Up to $2,000 annually
- Lower-income earners (<$33,000/year): Average benefit around $450 (if they qualify)
Example Scenarios:
- A restaurant worker in New Jersey earning $40,000 base salary and $10,000 in overtime could deduct all $10,000—saving up to $2,200 in taxes.
- A nurse earning $80,000 with $15,000 overtime could deduct the full amount and save thousands.
- A college student earning $6,000 in tips and no overtime might see little to no tax benefit due to already low tax liability.
Important Note: Payroll Taxes Still Apply
Even though federal income tax is eliminated on eligible overtime:
- Social Security (6.2%)
- Medicare (1.45%)
- State and Local Taxes
…are still withheld from your paycheck.
No Tax on Overtime Impact on Employers
Employers must:
- Track and report FLSA-qualified overtime separately
- Report it on your W-2 using a new code in Box 12
- Avoid misclassifying regular pay as overtime to dodge legal penalties
No Tax on Overtime Benifits
The $4.5 trillion package includes:
- Permanent 2017 Trump Tax Cuts
- No Tax on Tips provision
- Auto Loan Interest Deduction (for U.S.-assembled cars)
- Spending Cuts to Medicaid, SNAP, and clean energy programs
- Debt Ceiling Raised by $5 Trillion
- Estimated Growth: +1.2% to GDP but adds $3.8 trillion to the deficit over 10 years
Frequently Asked Questions (FAQ)
When does the no tax on overtime start?
It starts with income earned from January 1, 2025. You’ll see the savings when you file your 2025 taxes in early 2026.
Will I get more money in each paycheck?
No. Taxes will still be withheld during the year. The savings come as a deduction on your tax return.
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Conclusion
The No Tax on Overtime law offers real tax relief for millions of hourly workers who put in extra hours. While not all workers benefit equally, those who qualify could see thousands in tax savings over the next few years.