Here's Who Qualifies for Trump's New 'No Tax on Overtime' Deduction

The One Big Beautiful Bill Act added several new tax breaks that are expected to increase last year's average refund of nearly $3,200 by anywhere from $300 to $1,000. While President Donald Trump signed the OBBBA in July, many of its provisions were made retroactive to apply to the 2025 tax year.

One of the OBBBA's signature provisions aims to let some hourly employees keep more of the pay earned during their most grueling workweeks. Although the White House has characterized this provision as "no tax on overtime," experts say the reality is considerably more nuanced.

"It is not as simple as it sounds," says Craig Wild, partner at the accounting firm Wild, Maney & Resnick.

That's in part because “the deduction is subject to strict eligibility and reporting requirements,” as Wild tells Money via email. He adds that common errors include misunderstanding what qualifies as overtime and failing to account for income phase-outs.

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Here are key facts Wild and other experts say taxpayers need to know before claiming the "no tax on overtime" deduction on their tax return for 2025.

Who qualifies for 'no tax on overtime'?

Not all U.S. workers qualify for this new deduction — even among people who work more than 40 hours a week. To be eligible to claim "no tax on overtime," you have to be a non-exempt hourly employee covered by the Fair Labor Standards Act (FLSA) who works over 40 hours a week.

Broadly, this means you earn an hourly wage rather than a set salary, and you don't hold an "executive, administrative or professional" role, according to the Department of Labor, which has a comprehensive guide on its website detailing the provisions of the FLSA.

There are caps on both the amount of income you can earn to be eligible and the dollar amount you can deduct.

On the income side, the ability to take the deduction begins phasing out for people with incomes over $150,000 ($300,000 for married couples) and terminates entirely for incomes over $275,000 ($550,000 for couples). The dollar amount you can claim for the deduction is $12,500 ($25,000 for couples).

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What earnings qualify for 'no tax on overtime'?

Once you've determined that you're an eligible worker, you need to calculate how much overtime you worked and how much overtime pay you earned in 2025, which pros warn could be a hassle for taxpayers.

Starting in 2026, employers are required to report overtime on employees’ W-2 tax forms. But for this year, workers are on their own to gather up their pay stubs and tally up the hours, says Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center.

“It’s up to the taxpayer to figure out if he or she qualifies for the deduction and how much they can claim,” she says.

Holtzblatt notes that although the IRS published new 1040 filing instructions that include some guidelines for the "no tax on overtime" deduction, people may still find the calculations challenging.

"Even though they've tried to simplify it for taxpayers with these formulas, they're not necessarily intuitive," she cautions.

What else to know about 'no tax on overtime'

After tallying up your overtime earnings, there’s one more caveat many taxpayers don’t understand, says Holtzblatt — and it's one that could land you in hot water with the IRS if you slip up.

Even though "no tax on overtime" is how the deduction has been billed to Americans, "it’s not the total amount," she notes.

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To be clear: You only get to take the deduction for the overtime premium. In other words, if you earn $20 an hour normally and $30 for each hour of overtime worked, you can only claim $10 for each $30 hour.

People who deduct their full time-and-a-half hourly rate rather than just the premium risk claiming a larger deduction than they're actually owed. What's more, if you're one of the lucky few who earn double for overtime hours worked, you can still only deduct a 50% premium of your regular hourly rate rather than the full 100% wage premium. (Using the hypothetical above, if you earn $20 an hour normally and $40 for each overtime hour, you can still only claim $10 of each $40.)

Lastly, this deduction only applies to income tax portion of your withholdings. You still owe Social Security and Medicare taxes on overtime pay.

"It gets really tricky determining how much of your pay is overtime," Holtzblatt says.

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