If you've been clocking extra hours at the warehouse, the hospital, or the construction site, you’ve probably heard the buzz about a major change to your paycheck. It sounds like a dream, right? Working over 40 hours and actually keeping all that extra cash without the IRS taking a bite. Well, the "One Big Beautiful Bill" (OBBB), signed into law on July 4, 2025, made this a reality—sort of.
The short answer to the big question, when does trump's no tax on overtime start, is that it’s already here. Technically, the law is retroactive to January 1, 2025. This means if you are working overtime right now in early 2026, or if you logged a ton of extra shifts last year, you are already in the eligibility window. But don't expect your weekly paycheck to suddenly look different without you doing some legwork. Because of how the law was passed, the "no tax" part actually functions as a massive deduction you claim when you file your taxes, rather than an automatic disappearance of tax from your Friday pay stub.
How the Overtime Tax Break Actually Works
It’s not a magic switch. Honestly, the phrase "no tax on overtime" is a bit of a marketing term. In reality, Section 70202 of the OBBB creates a federal income tax deduction for what the government calls "qualified overtime compensation."
Think of it this way: when you file your 2025 tax return (the one you’re likely working on right now in 2026), you can subtract a portion of your overtime pay from your total taxable income. This lowers your tax bill or increases your refund. It’s an "above-the-line" deduction, meaning you don't even have to itemize your taxes to get it. You can take the standard deduction and still grab this overtime break.
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But there’s a catch. Or a few.
First, it only applies to the "extra" part of your overtime. If you make $20 an hour normally and $30 an hour for overtime (time-and-a-half), you can only deduct the $10 "premium" portion. You still pay regular income tax on the base $20.
Who Gets to Claim It?
Not every worker is invited to the party. The law specifically targets "non-exempt" employees under the Fair Labor Standards Act (FLSA). Basically, if you’re an hourly worker who is legally entitled to time-and-a-half after 40 hours, you’re likely in. If you’re a salaried manager who doesn’t get overtime pay, this doesn't help you at all.
There are also some hard limits on the money:
- Single Filers: You can deduct up to $12,500 in qualified overtime pay per year.
- Married Filing Jointly: The cap doubles to $25,000.
- The "Rich" Cutoff: If you make too much money, the benefit disappears. The phase-out starts at a Modified Adjusted Gross Income (MAGI) of $150,000 for singles and $300,000 for couples. If you’re a single person making over $275,000, you get zero.
The 2026 Transition: Why Your W-2 Might Look Weird
Since the law was signed mid-year in 2025, the IRS gave employers a bit of a "grace period." For the 2025 tax year, companies weren't forced to have perfect tracking systems. They could use "any reasonable method" to estimate your overtime.
Now that we’ve rolled into 2026, the rules are tightening up. The IRS has released draft versions of the 2026 W-2 form. Employers are now expected to use Box 12 with a new code ("TT") to specifically report your qualified overtime. If your boss isn't tracking this yet, they might face penalties later this year.
Common Misconceptions About the New Law
People keep saying "tax-free," but that's not 100% accurate. You are only escaping federal income tax. You still have to pay:
- Social Security Taxes (6.2%)
- Medicare Taxes (1.45%)
- State and Local Taxes (unless your specific state decided to follow the federal lead, which many haven't done yet).
Also, this isn't a permanent change. As it stands, the "no tax on overtime" provision is set to expire on December 31, 2028. Unless a future Congress votes to extend it, your overtime will go back to being fully taxed in 2029. It's a four-year window to maximize your earnings.
Actionable Steps for Workers and Business Owners
If you want to make sure you actually see this money, you can't just wait for it to happen.
For Workers:
- Save your 2025 pay stubs. Since 2025 was a "transition year," your employer might not have the "TT" code on your current W-2. You might need to manually calculate your overtime premium to claim the deduction on Schedule 1-A.
- Adjust your W-4. If you know you're going to have a huge deduction from overtime, you might be over-withholding. Talk to a tax pro about adjusting your Form W-4 so you get more money in your weekly check instead of waiting for a refund in 2027.
- Check your filing status. Remember, if you’re married but file separately, you are completely disqualified from this deduction. You must file jointly.
For Business Owners:
- Update your payroll software. Ensure your system is ready to flag FLSA-required overtime separately from other types of pay (like holiday premiums or bonuses).
- Review the "Salary Level Test." With the 2024 court rulings keeping the exempt salary threshold at $35,568, more of your lower-salaried staff might actually qualify as non-exempt, making them eligible for this tax break if they work extra hours.
Basically, the start date for when does trump's no tax on overtime start was January 1, 2025, but the "real" impact is hitting bank accounts right now as people file their first returns under the new law. Keep those records clean and make sure your employer is coding your hours correctly for the 2026 tax year.
To get the most out of this, your next move should be to download your year-end payroll summary for 2025 and identify every hour worked over the 40-hour threshold. Match those hours against your base pay rate to find your "qualified overtime premium" before you head to your tax appointment.