If you’re someone who relies on overtime to boost your paycheck, there’s some great news tucked inside the recent “One Big Beautiful Bill.” A key provision has been introduced to help hardworking Americans keep more of what they earn — specifically when it comes to overtime pay.
How It Works:
Let’s break it down in simple terms.
If you make $20 per hour and work overtime, your overtime rate is typically time-and-a-half, or $30 per hour. This means you’re earning an extra $10 per hour on top of your regular pay.
Under this new provision, the “no tax” benefit applies only to the extra $10 you earn for working overtime — not to your base $20 rate.
How You Claim It:
Workers will claim this as a deduction when they file their federal income taxes. It’s not automatic, so it’s important to keep track of your overtime earnings.
Employers are encouraged to track this amount for you and include it on your W-2 form at the end of the year, making it easy for you (and your accountant) to file correctly.
Deduction Limits:
There are caps on how much you can deduct:
- Up to $12,500 for individuals
- Up to $25,000 for married couples filing jointly
Income Limits to Qualify:
To qualify, your modified gross income must be under $150,000 if filing individually, or under $300,000 if filing jointly.
When Does This Apply?
This tax benefit applies for tax years 2025, 2026, 2027, and 2028 for hourly workers.
Important Note:
This is a federal tax deduction only. You will still owe any state income taxes on your overtime pay unless your state decides to adopt a similar provision.
Why This Matters to Workers:
✅ More money in your pocket.
✅ Incentivizes taking on extra hours without extra tax burden.
✅ Supports workers looking to save, pay down debt, or get ahead financially.For many, this is a simple and impactful way to reward hard work without penalizing you at tax time.
