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The “no tax on overtime” provision is a new federal income tax deduction introduced by the one big beautiful bill act, signed into law on july 4, 2025 1, 2025, and will remain in place through 2028. It allows eligible workers to deduct the premium portion of their overtime pay from their federal taxable income, helping reduce their overall tax bill
So, when does no tax on overtime start This exemption retroactively begins on jan Since october 1, 2024, it has exempted overtime from state income tax
The trial will run through june 20, 2025
It’s still tied to flsa rules and only covers hours beyond the standard 40 a week No other state has followed suit, but alabama’s move hints at what a national rollout might look like in the coming years. No tax on overtime retroactively begins on jan 1, 2025, and will remain in place through 2028
The qualification for the no tax on overtime depends on employment classification, income levels, and legal work status. The irs released new guidance for no tax on tips and overtime deductions under the one big beautiful bill act Eligible workers can claim up to $25,000 for tips and $12,500 for overtime. Starting january 1, 2025, a designated amount of qualifying overtime pay will be exempt from federal income tax under the one big beautiful bill act (obbba)
You can deduct up to $12,500 (for most filers) or $25,000 (married filing jointly) in overtime pay from your taxable income.
With trump’s signing of the bill last week, the changes go into effect for tax year 2025, meaning that when workers are filing taxes next spring, they will be able to deduct their tip and. Is overtime pay in 2025 tax free Another caveat is that, unless congress extends it, the “no tax on overtime” law expires after four years It applies retroactively to qualified overtime.
Read our blog post to learn the essentials you need to know about the “no tax on overtime” provision of the recent budget reconciliation bill
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