No Tax on Overtime…Explained!

These days, most people are stretching their paychecks thinner than a worn-out exercise band — and let’s be honest, by early 2026 that thing has probably been retired to the junk drawer. Bills keep piling up, and everyone’s juggling costs just to make it to the next payday. A major campaign promise from last year has now become law, and it should ease some of the pressure for certain folks. But who actually benefits — and what does that benefit really look like in dollars and cents? We’ve got the details for you!

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Here are Five Fast Facts on the deduction of overtime taxes:

1. ✂️ Big And Beautiful - The new deduction was part of the One Big Beautiful Bill Act (OBBBA). It allows for the deduction of income tax on the "half" part of "time and a half."

2. 4️⃣ Four Years - This glorious tax loophole only applies to tax years 2025 through 2028 (unless Congress extends it then, of course), so enjoy the four years of freedom before it potentially vanishes like that friend who promised to Venmo you back.

3. 💸 Max Limit - You can deduct up to $12,500 if you're flying solo, or $25k if you're married and filing jointly (because teamwork makes the dream work...tax-wise).

4. 👀 Not For Everyone - If your income is over $150k (if you're single) or $300k (if you're filing joint), the deduction starts shrinking faster than your motivation on a Monday morning. Too bad for you, high earners!

5. ☝️ Narrow Focus - Only the federally required overtime premium counts - there's no love for fancy state rules, union deals, or your boss being unusually nice and throwing in bonus overtime.

🔥Bottom line: Because a lot of businesses won't necessarily have a system in place to calculate this new deduction, the IRS has given some guidelines on how to do it, and said there won't be penalties for NOT calculating it for 2025...as long as the rest of your tax return is correct. That seems like a shocking amount of grace and common sense for the IRS, but we're glad for it! Ultimately, this new deduction won't help everyone, but for those who regularly work overtime to help make ends meet...yeah, this should be great!

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Do you regularly work overtime?

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