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Status Update 6 min read · Updated May 2026

Did No Tax on Overtime Pass?

Yes. The One Big Beautiful Bill Act was signed into law in July 2025, establishing a federal deduction for overtime wages. This is no longer a proposal — it is the law. Here is everything you need to know.

Status: Passed and Signed

The no-tax-on-overtime deduction is law, effective for tax year 2025. The One Big Beautiful Bill Act was signed in July 2025, making overtime wages deductible from federal taxable income for qualifying workers.

What the Law Does

The One Big Beautiful Bill Act creates a federal income tax deduction for overtime compensation paid under the Fair Labor Standards Act. In plain terms:

  • Qualifying workers can deduct overtime wages from their federal taxable income.
  • The deduction is for federal income tax only — FICA taxes (Social Security and Medicare) still apply to overtime pay.
  • The deduction is retroactive to January 1, 2025.
  • Income limits are included to focus the benefit on middle-income earners.

The deduction does not automatically change how taxes are withheld from your paycheck — at least not immediately. For the 2025 tax year, many workers will see the benefit when they file their return in early 2026. Going forward, updated IRS withholding tables should allow employers to reduce withholding on overtime pay during the year.

How to Claim the Deduction

  1. Confirm you qualify — you must have earned FLSA overtime pay in 2025 or later, and your income must fall within the eligibility limits.
  2. Gather your records — collect your W-2 or pay stubs that break out your overtime earnings for the year.
  3. File your federal return — claim the deduction on your 2025 federal income tax return using the applicable form or worksheet provided by the IRS.
  4. Check state conformity — not all states conform to the federal deduction. Check with your state's revenue department or a tax professional.

Frequently Asked Questions

Is no tax on overtime really a law now? +
Yes. The One Big Beautiful Bill Act was signed in July 2025. The no-tax-on-overtime provision is law and applies starting with tax year 2025. It is no longer a campaign promise or proposal.
Does it apply to all workers? +
The deduction targets non-exempt hourly workers and salaried workers who earn FLSA overtime. Exempt workers (those who do not receive overtime under FLSA) generally do not qualify. Income caps may also restrict eligibility for high earners.
Can I still claim overtime I worked in early 2025 before the law was signed? +
Yes. The deduction is retroactive to January 1, 2025. All qualifying overtime earned in calendar year 2025 — including before July — is eligible for the deduction on your 2025 federal tax return.
Does this affect Social Security and Medicare taxes? +
No. FICA taxes (Social Security at 6.2% and Medicare at 1.45%) still apply to overtime pay. The deduction only reduces your federal income tax liability, not payroll taxes.

Calculate Your Savings

See exactly how much less federal tax you owe on your overtime earnings with our free calculator.

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