No Tax on Overtime, Explained

Yes. There's no separate "no tax on overtime bill" you need to track — it's one provision inside the One, Big, Beautiful Bill Act (OBBBA), a much larger tax and spending law that passed Congress and was signed by President Trump on July 4, 2025. The same law also created the "no tax on tips" deduction and a new deduction for car loan interest. All three work the same basic way: an above-the-line federal income tax deduction, not a payroll tax cut and not a full exemption.

Because it's already signed and in effect, questions like "did the no tax on overtime bill pass" or "did the Senate pass no tax on overtime" have a settled answer: yes, in July 2025. What's still evolving is implementation detail — the IRS published the new Schedule 1-A form and Box 12/14 W-2 reporting codes afterward, through 2025 and into 2026, and some fine points (like the car loan interest phase-out rate) were still being finalized as of this writing. The core overtime and tips deduction rules, however, are settled.

Yes on both counts. The deduction applies retroactively to overtime pay earned starting January 1, 2025, even though OBBBA wasn't signed until July 2025 — so overtime you already worked earlier in 2025 still qualifies. It runs through tax year 2028 and is scheduled to expire after that unless Congress extends it.

2025 was a transition year for reporting: the IRS gave employers penalty relief under Notice 2025-62, and most 2025 W-2s don't have a dedicated overtime code on them the way 2026 W-2s will (Box 12 codeTT). That doesn't mean 2025 overtime doesn't qualify — it just means you'll likely need to work out your qualified overtime amount from your pay stubs or hours records rather than reading it off a single W-2 box. You claim the deduction on your 2025 return (filed in early 2026) using the new Schedule 1-A; it isn't refunded automatically and it doesn't change your paycheck during the year. Seehow to claim it on Schedule 1-Afor the filing mechanics.

This is the single biggest point of confusion around this deduction, and it's worth being precise about. "Qualified overtime compensation" is only the premium portion of time-and-a-half pay — the extra "half," not the full 1.5× rate.

Say your regular hourly rate is $22 and you work overtime at time-and-a-half, or $33/hr. Your full overtime paycheck for those hours is $33 × hours worked. But the qualified portion this deduction actually applies to is just the premium: $22 × 0.5 = $11 per overtime hour. Work 240 overtime hours in a year at that rate, and your full overtime pay is $7,920 — but your qualified overtime is only $2,640. That $2,640 figure, not the $7,920 you were actually paid, is what counts toward the deduction cap.

This is exactly why the calculatorasks for your hourly rate and hours, your total overtime pay, or your W-2 code TT amount separately, rather than just "how much overtime did you get paid" — those three inputs derive the same qualified figure three different ways, and getting the derivation right is the whole ballgame.

The Fair Labor Standards Act (FLSA) is the federal wage-and-hour law that sets the baseline overtime rule almost every hourly employee in the US is covered by: for most non-exempt employees, any hours worked past 40 in a single workweek must be paid at 1.5× the employee's regular rate. That's the definition this deduction is built on — only FLSA-required overtime qualifies.

"FLSA overtime" specifically means overtime required by that federal law, as opposed to overtime that's only required by a state law, a union contract, or a voluntary company policy. Most of the time these overlap completely — if you work 45 hours in a week for a typical hourly job, the 5 extra hours are FLSA overtime, full stop. But a handful of states layer extra overtime rules on top of the federal one (most notably California's daily-overtime and double-time rules), and in those states some of what shows up as "overtime" on a paycheck is state-mandated, not FLSA-required, and doesn't qualify for this federal deduction. SeeFLSA vs. state overtime and this deductionfor the full breakdown, and thestate-by-state guidefor how your specific state's rules interact with it.

Salaried employees classified as "exempt" under the FLSA — generally certain executive, administrative, professional, and highly compensated roles — aren't entitled to FLSA overtime pay at all, so they typically have no qualified overtime to deduct, regardless of how many hours they actually work. Seesalaried employees and this deductionfor who's affected.

The maximum deduction is $12,500 for single or head-of-household filers, or $25,000 for married couples filing jointly — and that joint figure applies once per return, not per spouse, even if both spouses had qualified overtime. Above $150,000 MAGI (single/HoH) or $300,000 MAGI (married filing jointly), the cap starts shrinking by $100 for every full $1,000 your MAGI is over that threshold, per the actual IRS Schedule 1-A worksheet math. It reaches $0 entirely at $275,000 single or $550,000 married filing jointly. Above those figures, there's no partial deduction left to claim.

A valid Social Security number is required on the return, and married taxpayers must file jointly — married filing separately can't claim this deduction at all, regardless of income. Seewho qualifies for the deductionfor the complete eligibility picture, or run your own numbers throughthe calculator.

Nothing about this deduction changes what's withheld from your paycheck during the year. Federal income tax, Social Security (6.2%), and Medicare (1.45%) are all still withheld on your full wages, overtime premium included, exactly as before. The deduction only shows up when you file your return: it reduces your taxable income, which reduces your federal tax liability, which typically means a larger refund or a smaller balance due — not a bigger paycheck today.

The deduction covers tax years 2025 through 2028 and is currently scheduled to expire after that unless Congress passes an extension. Treat it as a multi-year benefit, not a permanent change to how overtime pay is taxed.

This is general information, not tax advice, based on published IRS guidance for tax years 2025–2028. Your actual deduction depends on your full return. Confirm with a tax professional or the IRS before filing. Every calculator linked from this page runs entirely in your browser — nothing you enter leaves your device.