Introduction: A Tax Break for Hardworking Americans

Starting in 2025, a landmark provision in the One Big Beautiful Bill Act (OBBBA) introduces a valuable deduction: up to $12,500 of your overtime “premium” pay (or $25,000 for joint filers) can be excluded from federal taxable income, making overtime earnings effectively tax-free, with some limitations. KiplingerIRSWikipedia

What Is “No Tax on Overtime”?

The new law allows workers to deduct the “half” portion of time-and-a-half overtime pay, i.e., only the payment above the regular rate – from their federal income taxes. It’s an above-the-line deduction, so you don’t need to itemize to benefit. National Association of Home BuildersIRSWikipedia

Key Details You Should Know

• Effective Period: Retroactive from January 1, 2025, and valid through 2028. KiplingerIRSOgletree
• Income Limits & Phase-outs: The deduction is available to single filers making up to $150,000 (phase-out above that, and phased-out fully by $400,000). Joint filers may claim up to $25,000, with phase-outs starting at $300,000. National Association of Home BuildersIRSInvestopedia
• Taxes Still Apply: Payroll taxes (including Social Security and Medicare) and state and local income taxes still apply to overtime earnings. KiplingerIRSRSM US

Who’s Eligible and Who’s Not

• Eligible: Employees working beyond 40 hours/week whose overtime is required under the Fair Labor Standards Act (FLSA), i.e., qualifying non-exempt workers. National Association of Home BuildersRSM USWikipedia
• Ineligible: Overtime paid only via contract, state/local law, or voluntarily; and employees without a valid Social Security number, or those filing separately. InvestopediaNational Association of Home BuildersIRS

How It’s Reflected on Your W-2

Employers must report the qualifying overtime separately on your Form W-2, with special transition rules provided for 2025 to ease the shift. National Association of Home BuildersIRSRSM US

Real Impact: Who Benefits and How Much?

According to the Tax Policy Center, only about 8.8% of tax filers will qualify and yet they’re expected to average $1,440 in savings. Investopedia

Don’t miss out on this powerful tax incentive: For the tax years 2025–2028, eligible workers can deduct up to $12,500 (or $25,000 for joint filers) of overtime premium pay under the new “No Tax on Overtime” provision in the OBBBA. Remember this only affects federal income taxes. Stay aware of your eligibility, income thresholds, and reporting requirements to maximize your return.