“No tax on overtime” sounded fantastic when both Harris and Trump promised a version of it in 2024. Work more, get more...seems pretty simple and fair, right? Unfortunately, this is the U.S. tax code, so naturally there’s a catch, a limit, and enough fine print to make your 60-hour work week look relaxing. Anyway, now that we've had it for a year, let's see how it's going!
Here are Five Fast Facts on "no tax on overtime":
- 💡 Memory Jogger - In case you forgot, the One Big Beautiful Bill Act (OBBBA) passed in 2025 created a tax deduction for overtime from 2025 through 2028. Workers can deduct the overtime premium - generally the “half” in time-and-a-half - up to $12,500 (or $25,000 for joint filers).
- 🤦 Politicians Be Politicking - As is depressingly usual with politics, the reality is a bit different. Overtime isn’t actually tax-free, at least not all of it. The deduction applies only to part of the overtime, income limits also apply, and the deduction phases out above $150k for single filers and $300k for joint filers.
- 🍞 Since Sliced Bread - Supporters point to the cash landing in workers’ accounts and the incentive for people to pick up extra shifts now that a chunk of that overtime escapes federal income tax as fulfilling campaign promises and helping out American workers. Hard to argue with paying less in taxes, right?
- 😕❓ Just Say No - Opponents say these “no tax on” carveouts are further complicating the tax code, driving a multi-trillion dollar deficit increase over the next few years, and have already produced a surge of claims that raises questions about overstatement. True, it’s hard to argue that the tax code isn’t stupid complicated.
- 🔍 Status Check - Over the last year, the deduction has been claimed on nearly 22 million returns - more than 20% of all tax filers - and about twice the number originally projected, potentially putting tens of billions more dollars into workers’ pockets than the IRS expected. And now their spreadsheets have gaping holes in them...
🔥Bottom line: While it's not quite the sweeping transformation from the campaign promises, you can actually keep more of your overtime money, so we'll take that all day every day! Just don’t tell the IRS your entire overtime check is invisible. Uncle Sam can still see it just fine, and apparently he has excellent eyesight when there’s paperwork and taxes involved.
Did you claim this new deduction this year?
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