If you’ve been scrolling through news feeds lately trying to figure out if your paycheck is about to look different, you aren't alone. Honestly, the "overtime bill" situation has been a total rollercoaster. One minute you're hearing about massive salary threshold jumps, and the next, a judge in Texas throws a wrench in the whole thing.
It’s confusing.
Right now, in early 2026, we are looking at two very different "overtime" stories. One is about who has to be paid overtime (the Department of Labor rules), and the other is about a brand-new law that changes how that money is taxed.
The Law That’s Actually Live: No Tax on Overtime
Let’s talk about the big one first. On July 4, 2025, the "One Big Beautiful Bill" (officially the Working Families Tax Cut) was signed into law. This is the "bill" most people are asking about when they want to know what's happening right now.
Basically, it created a massive federal tax deduction for overtime pay.
When does the overtime bill go into effect for taxes? It’s already here. The law was written to be retroactive to January 1, 2025. This means that when you file your taxes this year (for the 2025 tax year), you can actually use it.
Here is the deal: if you’re a non-exempt worker (the kind who gets time-and-a-half), you can deduct up to $12,500 of that overtime pay from your federal income tax. If you’re married and filing together, that number jumps to $25,000.
It’s a huge shift. But there's a catch—there's always a catch, right?
You still have to pay payroll taxes. Social Security and Medicare aren't going anywhere. Also, this isn't a permanent change. As of right now, this tax break is scheduled to expire on December 31, 2028. It’s a four-year window to keep a little more of that "time-and-a-half" in your own pocket.
When Does the Overtime Bill Go into Effect for Salary Increases?
This is where things get messy. You might remember hearing that the Department of Labor (DOL) was going to force companies to pay overtime to anyone making less than roughly $58,000 a year.
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That was the plan.
A rule was set to go into full effect on January 1, 2025. It would have shifted millions of salaried workers into the "overtime eligible" category. But then, on November 15, 2024, Judge Sean D. Jordan of the U.S. District Court for the Eastern District of Texas vacated the rule.
He didn't just pause it; he wiped it out nationwide.
The court basically said the DOL leaned too hard on salary and ignored the actual duties people perform. Because of that ruling, the federal salary threshold for overtime exemption stayed at $684 per week (about $35,568 a year).
If you were expecting a raise or overtime eligibility because of that specific federal rule, it’s currently dead in the water.
The State-Level "Wild West"
Even though the federal government is in a bit of a stalemate over salary thresholds, your state might not be. This is where most people get tripped up. They look at federal news and forget that California or New York might have their own ideas.
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Honestly, if you live in one of these states, the "when" is right now.
California
On January 1, 2026, California’s minimum wage bumped up to $16.90. Because their overtime exemption is tied to the minimum wage, you now have to make at least **$1,352 per week** ($70,304 a year) to be considered "exempt" from overtime.
New York
If you’re in NYC, Nassau, Suffolk, or Westchester, the threshold hit $1,275 per week on January 1, 2026. For the rest of the state, it’s $1,199.10.
Washington State
Washington is even more aggressive. Their threshold is now $1,541.70 per week. That’s over $80,000 a year.
Other states like Maine ($871.16/week) and Colorado ($1,111.23/week) also saw jumps at the start of 2026. If you are in a state that follows the federal "floor," you’re still stuck at that $35,568 number. But if you’re on the coast or in the Rockies, the rules are changing fast.
The Income Caps You Need to Know
Going back to that "No Tax on Overtime" bill—the one that passed in July 2025—it isn't for everyone. It’s designed for middle and lower-income workers.
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If you make too much, you don't get the deduction.
The phase-out starts at $150,000 for single filers and $300,000 for joint filers. Once a single person hits $275,000 in Modified Adjusted Gross Income (MAGI), the benefit disappears completely. The same happens for couples at $550,000.
What Happens Next?
The "No Tax on Overtime" provision is likely safe for the next couple of years because it was part of a major legislative package. However, the Department of Labor's ability to raise the salary threshold is still being fought over in courts.
We might see a new attempt at a rule later in 2026, but it would likely be more modest than the one that got struck down.
Actionable Steps for Workers
- Check your W-2: When you get your forms this year, look for how your employer reported your overtime. You’ll need this to claim the new federal deduction.
- Audit your job duties: If you make more than $35,568 but less than $70,000, and you live in a state like California or Washington, you might be owed overtime even if your boss says you’re "salaried."
- Track your hours: Even if you think you’re exempt, keep a log. If a court ruling changes things or you move states, having a record of your "free" labor is vital for back-pay claims.
- Talk to a CPA: This new "No Tax on Overtime" thing is brand new. Don't assume your standard tax software will catch every nuance of the "qualified overtime compensation" definition.
The bottom line is that the "overtime bill" for tax savings is live and retroactive, while the "overtime bill" for higher salary thresholds is mostly a state-by-state battle for now. Keep an eye on your local laws, because that's where the real movement is happening in 2026.