If you've been putting in extra hours at the warehouse, the hospital, or the construction site, you've probably wondered if that "time-and-a-half" is actually worth it after the IRS takes its cut. It's a common frustration. You work harder, you move into a higher tax bracket, and suddenly that overtime bonus feels a lot smaller than you expected.
There has been a ton of noise lately about whether the government is finally giving hourly workers a break. Specifically, people are asking: is trump stopping taxes on overtime?
💡 You might also like: 1 Lira to USD: Why the Math Keeps Changing and What it Means for You
The short answer is yes, but it's not a total "delete" button for every tax on your paycheck. It's also not as simple as just ignoring those lines on your pay stub. We’re currently in 2026, and the rules from the One Big Beautiful Bill Act (OBBBA)—which was signed into law on July 4, 2025—are officially in play for this tax season.
The Reality of "No Tax on Overtime"
Basically, the law creates a new federal income tax deduction for "qualified overtime compensation." It isn't a magic wand that makes overtime invisible to the IRS, but it's a massive shift in how that money is treated.
For the first time, the federal government is essentially saying that the "extra" money you earn for working more than 40 hours shouldn't be taxed the same way as your base salary. Honestly, it’s a big deal for anyone living on an hourly wage.
How the Deduction Actually Works
When we talk about "no tax," we’re specifically talking about an above-the-line deduction. You don't even have to itemize your taxes to get it. If you're eligible, you can knock a huge chunk of your overtime pay right off your taxable income.
Here is the breakdown of the limits for the 2025 and 2026 tax years:
- Single filers: You can deduct up to $12,500 of qualified overtime pay per year.
- Married filing jointly: The cap doubles to $25,000.
- The "Half" Rule: This is the part that trips people up. The deduction usually applies to the premium portion of your pay—the "half" in time-and-a-half. If you make $20/hour regularly and $30/hour on overtime, that extra $10 is what's typically deductible.
Who Is Eligible for the Overtime Tax Break?
Not everyone gets to claim this. The law is very specific about who counts. To qualify, your overtime must be required by the Fair Labor Standards Act (FLSA).
If you’re a salaried "exempt" employee—like a high-level manager or a specialized professional making over $58,656 a year—you generally don’t get FLSA overtime. That means this tax break probably won't touch your return. It’s really designed for the blue-collar and service-sector workers who are strictly hourly.
You also have to watch your total income. If you’re making "too much" money, the benefit starts to disappear.
- Phase-out starts: $150,000 for single filers ($300,000 for married couples).
- Phase-out ends: $275,000 for single filers ($550,000 for married couples).
If your Modified Adjusted Gross Income (MAGI) is somewhere in that middle range, you’ll only get a partial deduction. If you're above the top number, you're back to paying full freight on every overtime hour.
The Hidden Fine Print: Payroll Taxes
This is where I have to be the bearer of some slightly "meh" news. While the law targets federal income tax, it doesn't stop Social Security and Medicare taxes (payroll taxes).
You'll still see those 7.65% deductions coming out of your overtime pay. The government still needs to fund those programs, and they weren't included in the OBBBA's "no tax" provision. Also, depending on where you live, your state might still want its cut. Some states align their tax codes with the federal system, but others don't. You'll want to check if your state has passed its own version of "no tax on overtime" to see if you’re truly home free.
Why This Matters for 2026
Since the bill was signed in mid-2025 but made retroactive to January 1, 2025, many people didn't have their withholdings adjusted in time.
What does that mean for you right now? Higher refunds. Tax experts at the Tax Foundation and H&R Block are predicting that millions of hourly workers will see a significant bump in their tax refunds this year. Because your employer likely kept taking taxes out of your overtime all through 2025 as if the old rules applied, you've essentially overpaid the government. When you file your 2025 return in early 2026, you're going to be asking for that money back.
The W-2 Code to Watch
For the 2026 tax year, the IRS has introduced a specific code for your W-2. Look at Box 12. You might see the code "TT" (which stands for Trump's Tax-free overtime/tips, depending on the final IRS manual). This is where your employer reports the "qualified overtime" so the IRS knows exactly how much you’re allowed to deduct.
Is Trump Stopping Taxes on Overtime for Good?
The "One Big Beautiful Bill" has a sunset clause. Right now, this overtime deduction is scheduled to expire after December 31, 2028.
Politics is unpredictable, obviously. If the administration changes or if Congress decides the deficit is growing too fast (the Joint Committee on Taxation estimated a $90 billion revenue loss over four years), this could be a temporary luxury. But for now, and for the next few years, the law is the law.
Actionable Steps for Tax Season
If you're looking at your pile of pay stubs and wondering how to handle this, don't just wing it.
- Check your W-2 carefully: Make sure your employer actually separated your overtime pay into the correct box. For 2025 filings, there was some "transition relief," meaning employers could use "any reasonable method" to report it. If it’s not clear, ask your HR department for a summary.
- Use the right form: You’ll likely need to fill out Schedule 1-A (a new addition) to calculate the deduction before it hits your Form 1040.
- Don't forget the Social Security Number: You must have a valid SSN to claim this. If you’re filing with an ITIN, the rules are much stricter and you might be ineligible for this specific deduction.
- Avoid "Married Filing Separately": This status usually disqualifies you from the overtime deduction. Most couples will want to file jointly to maximize the $25,000 cap anyway.
The bottom line is that the effort to stop taxes on overtime has actually resulted in a tangible, if complex, benefit for hourly workers. It rewards the "grind," but it requires you to be a bit more diligent when you sit down to file your taxes this year.
Next Steps for You:
Check your most recent pay stub from 2025. Look for a line item that specifically calls out "FLSA Overtime" or "Premium Pay." If your total overtime for the year looks like it will exceed $12,500, you should talk to a tax professional about how the phase-out might affect your specific bracket.