One Big Beautiful Bill: No Tax on Overtime pay explained (2025-2028)
At a glance
- Starting January 1, 2025, a designated amount of qualifying overtime pay will be exempt from federal income tax under the One Big Beautiful Bill Act (OBBBA).
- You can deduct up to $12,500 (for most filers) or $25,000 (Married Filing Jointly) in overtime pay from your taxable income.
- The tax benefit phases out for higher earners, starting at $150,000 (Single) or $300,000 (Married Filing Jointly).
- You must be a non-exempt W-2 employee and your overtime must meet federal labor standards.
Extra work hours in the week can mean extra pay for some. Now, it can also mean a new tax benefit you can claim on your return come tax time. Starting January 1, 2025, the One Big Beautiful Bill Act (OBBBA) introduces a federal income tax exemption on designated amount of qualifying overtime pay.
The big news is you can deduct up to $12,500 in overtime pay if for most filers (and up to $25,000 if you’re Married Filing Jointly). While the details are still unfolding, this new law will impact millions of people and businesses who file a U.S. tax return.
At H&R Block, we’re here to help you understand what this change means for you—and make sure you get your maximum refund.
Read on as we outline the details for overtime from the Trump tax plan 2025.
When does No Tax on Overtime start?
The No Tax on Overtime starts with overtime earned on or after January 1, 2025. Employers must be able to track and report overtime separately on your W-2 starting from that point. The current end date for the provision is December 31, 2028, but Congress may choose to extend it in the future.
No Tax on Overtime bill details
The OBBBA includes a provision that exempts qualifying overtime wages from federal income tax. Here we outline the key No Tax on Overtime bill details, so you can understand how and if you’re eligible.
How much income is tax free?
Income eligible for the deduction is capped at $12,500 (Single) / $25,000 (Married Filing Jointly).
When does it apply?
No tax on overtime applies to overtime pay earned starting January 1, 2025, and continues through December 31, 2028, unless extended. To benefit, your employer must be able to separately report overtime earnings on your W-2.
Who qualifies for the new overtime tax rules?
Not everyone will qualify for the tax break, so it’s important to understand the details.
- Employment type: You must be a W-2 employee. Independent contractors and gig workers are not eligible.
- Income thresholds: Those with higher Modified Adjusted Gross Incomes (MAGI) may only be able to claim a partial deduction as the benefit begins to phase out starting at $150,000 (Single) / $300,000 (Married Filing Jointly).
- Filing status: The deduction is not available for people using the Married Filing Separately status. Additionally, the taxpayer receiving the overtime must have a Social Security number valid for work.
- Labor regulations: Your overtime must meet federal labor standards—typically time-and-a-half for hours worked beyond 40 hours per week.
How will the One Big Beautiful Bill Act affect you?
Check out a breakdown of key changes from the One Big Beautiful Bill Act (OBBBA).
Is overtime pay taxable?
Yes, generally, overtime pay is taxable. In fact, tax on overtime pay is part of your total tax liability on wages, so it is subject to federal income tax, Social Security, and Medicare taxes—just like your regular pay.
With the new tax on overtime bill changes, you can now get a deduction for a certain amount of your overtime pay.
Is there no tax on overtime? Like at all?
No, not all overtime is tax-free. The tax break applies only to qualifying overtime wages under specific income thresholds. In other words, amounts above the threshold mentioned above will still be taxed.
Additionally, the exemption applies only to federal income tax. That means you’ll still pay Social Security and Medicare taxes on overtime earnings.
How will No Tax on Overtime work?
You’ll report your income as usual on Form 1040. The IRS will provide guidance on how to exclude qualifying overtime from your taxable income. We expect more details on that in the coming weeks.
What documentation is needed to report overtime on my taxes?
Your W-2 is the key document for filing your taxes. However, if your employer provides a pay stub breakdown or year-end summary showing overtime separately, keep it for your records. You could also receive Form 1099, or other specified statement to report your overtime pay
Take note: It’s also a smart idea to keep a record of your overtime yourself. And if you spot inaccuracies on your pay stub, let your employer know right away.
What is the overtime tax rate?
There’s no special overtime tax rate. Your overtime pay is considered ordinary income and is factored into your total income (i.e., your income before adjustments such as IRA contributions or student loan interest).
In other words, your normal tax bracket rates would apply to the overtime that’s included in your taxable income.
Rely on H&R Block for help with claiming your overtime deduction
While tax changes can be stressful, you don’t have to go it alone. Trust the expertise of H&R Block to help make sense of your taxes. Make an appointment to file with a tax pro or with H&R Block Online.
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