Have you come across the No tax on overtime and deduction, and wish to know more about the same? Well, this guide will tell you everything that you need to know about this deduction and when does no tax on overtime start, so that you are familiar with your employee rights.
What is the meaning of ” No Time on Overtime”?
On July 4, 2025, the US President Donald Trump signed the One Big Beautiful Act into law, which introduced and implemented certain important changes. One of the biggest things introduced in the bill was that there will be no federal income tax on overtime payments. This no taxes on overtime deduction is applicable to singles up to $12,500, whereas it is $25,000 for married people.
No Tax On Overtime: When Is It Going To Start?
The ‘no tax on overtime’ was written off at the time of signing by Trump on the 4th of July, 2025, and it will take effect from January 1 of that year. Workers who earned overtime in 2025 will be able to claim the deduction during the next federal tax filing season. Thus, the rule is already applicable to the majority of the workers who are going to benefit from it.
How does the No Tax On Overtime Deduction Work?
The legislation gives a deduction and not a complete exemption. Overtime remuneration is still subject to taxation, except for the amount of deduction. In fact, only the extra payment for overtime, such as the time beyond regular hours, is claimable. Some kinds of overtime, like voluntary or non-FLSA overtime, might not be eligible. The no taxes on overtime deduction merely lowers the federal taxable income but does not completely eradicate it.
US States Where No Tax On Overtime Deduction Does Not Apply
The federal no tax on overtime bill has been disallowed by some US states in order to safeguard their budgets. Hence, these states compel their inhabitants to pay state income tax on the income derived from overtime.
- Washington
- Colorado
- Illinois
- New York
