If you’ve been working extra hours in 2025, there’s potentially good news on your tax return: the “no tax on overtime” deduction that could put money back in your pocket. But despite the name, it’s not quite as simple as “no taxes” on all your overtime pay.
President Trump signed the One Big Beautiful Bill Act into law on July 4, 2025, introducing a new tax deduction for overtime compensation. According to the IRS, this provision allows eligible workers to deduct up to $12,500 of overtime pay ($25,000 for married couples filing jointly) from their federal taxable income for tax years 2025 through 2028.
For professional women juggling demanding careers, understanding how this deduction works—and whether you qualify—could make a significant difference when filing your taxes this spring. Here’s everything you need to know.
What “No Tax on Overtime” Actually Means
First, let’s clear up a common misconception: this isn’t a complete tax exemption. As tax experts explain, the “no tax on overtime” provision is actually a deduction, not a full elimination of taxes.
Key Distinction: A deduction reduces your taxable income, which then reduces your tax bill. It’s different from eliminating taxes entirely. You’ll still see payroll taxes (Social Security and Medicare) withheld from your overtime pay throughout the year.
According to H&R Block, the deduction applies only to federal income tax—your overtime pay remains subject to:
- Social Security taxes
- Medicare taxes
- State and local income taxes (where applicable)
Who Qualifies for the Overtime Deduction?
Not everyone who works extra hours will benefit from this deduction. Eligibility requirements include:
Employment Type
You must be a W-2 employee. Independent contractors, freelancers, and gig workers are not eligible for this deduction. The overtime must also be paid by your employer and reported on your W-2 form.
FLSA Coverage
Your overtime must qualify under the Fair Labor Standards Act (FLSA). This typically means:
- You’re a non-exempt employee (hourly workers, most non-professional positions)
- You receive at least time-and-a-half pay for hours worked beyond 40 per week
- You work in a position that’s entitled to overtime protections
According to payroll experts, many salaried employees are exempt from FLSA overtime requirements, making them ineligible for this tax benefit. However, some lower-wage salaried positions may qualify if they’re entitled to overtime under federal labor law.
Income Thresholds
The deduction phases out for higher earners. The IRS guidance states:
| Filing Status | Phase-Out Begins |
|---|---|
| Single | $150,000 MAGI |
| Married Filing Jointly | $300,000 MAGI |
The deduction is reduced by 10% of the amount your Modified Adjusted Gross Income (MAGI) exceeds these thresholds. If you’re married filing separately, you’re not eligible for this deduction at all.
Other Requirements
You must have a Social Security number valid for work. Additionally, you cannot “double dip”—if you’re claiming the “no tax on tips” deduction for the same income, you can’t also count it toward your overtime deduction.
Understanding What’s Actually Deductible
Here’s where it gets specific: you can’t deduct your entire overtime pay. According to the IRS, the deduction applies only to “qualified overtime compensation”—which is the pay that exceeds your regular rate.
How It Works: A Real Example
Scenario: Sarah earns $20 per hour for regular time. When she works overtime, she earns $30 per hour (time-and-a-half).
What’s deductible: Only the extra $10 per hour—the “half” portion of “time-and-a-half” pay.
If Sarah works 10 overtime hours in a week:
- Total overtime pay: $300 (10 hours × $30)
- Deductible amount: $100 (10 hours × $10)
- Not deductible: $200 (the regular-rate portion)
As CNBC reports, if you were paid $15 an hour for overtime (when your regular rate is $10), only the $5-per-hour difference is deductible.
How Much Can You Actually Deduct?
The deduction is capped at:
- $12,500 for single filers
- $25,000 for married couples filing jointly
According to budget analysts, this cap means that even if you earn more qualifying overtime compensation, you can’t deduct more than these amounts.
Real-World Impact
Let’s look at Sally’s situation from the Bipartisan Policy Center:
Sally’s income:
- Regular wages: $30,000
- Overtime pay: $5,000
- Deductible “bonus” portion: ~$1,667
Tax savings: If Sally is in the 12% tax bracket, this deduction saves her approximately $200 in federal income taxes.
For someone in the 22% bracket with the maximum deduction, the savings could be up to $2,750 ($12,500 × 22%).
When Does This Apply?
The overtime deduction is retroactive and temporary. According to employment law experts:
Timeline:
- Start date: January 1, 2025 (retroactive)
- End date: December 31, 2028
- First claim: When you file your 2025 taxes in early 2026
Even though the bill wasn’t signed until July 2025, all qualifying overtime earned from January 1, 2025 forward is eligible for the deduction.
After 2028, Congress would need to extend or make the provision permanent. Otherwise, it expires.
How to Claim the Deduction
For the 2025 tax year (filed in 2026), the process is somewhat transitional. According to IRS guidance:
For 2025 Tax Year
Form W-2s won’t be updated to separately show overtime compensation for 2025. This means:
- You’ll need to calculate your qualifying overtime yourself
- Keep your pay stubs showing overtime hours and rates
- Maintain documentation of all overtime worked
- Your employer may provide a year-end summary, but isn’t required to
Tax preparation experts recommend keeping detailed records including:
- All pay stubs showing overtime
- Your regular hourly rate
- Your overtime rate
- Total overtime hours worked
Special 2025 Rule: There’s a one-year “safe harbor” provision that allows employers to average your overtime from July through December 2025 to calculate the deduction. This transition rule exists because the law wasn’t passed until mid-year.
Starting in 2026
Beginning with tax year 2026, employers will be required to separately report qualified overtime compensation on Form W-2 and other information returns, making the process much simpler for employees.
What This Means for Professional Women
The overtime deduction has mixed implications for professional women:
Who Benefits Most
Women in eligible professions who regularly work overtime:
- Healthcare workers (nurses, technicians)
- Retail and hospitality managers (below exempt threshold)
- Administrative and support staff
- Manufacturing and production workers
- Public safety professionals
Who Doesn’t Benefit
Many professional women won’t qualify because:
- Exempt status: Many salaried professionals (lawyers, doctors, executives, teachers, administrators) are exempt from FLSA overtime requirements
- High earners: Women earning above the phase-out thresholds receive reduced or no benefit
- Freelancers: Independent consultants and business owners aren’t eligible
Potential Workplace Implications
Some experts worry about unintended consequences. Critics note that the tax benefit might:
- Incentivize employers to rely more on overtime instead of hiring additional workers
- Create inequality between employees who can work overtime and those who can’t (due to caregiving responsibilities, second jobs, or health limitations)
- Disadvantage women with family obligations who may not be able to consistently work beyond 40 hours
Common Questions and Misconceptions
Does this mean I won’t see taxes withheld from overtime checks?
No. For 2025, your employer will still withhold taxes from overtime as usual. You’ll claim the deduction when you file your tax return. Starting in 2026, the IRS may provide guidance allowing employers to adjust withholding for qualifying overtime.
Is this permanent?
No. The provision currently expires December 31, 2028. Congress could extend or make it permanent, but as written, it’s temporary.
What if I’m paid salary but receive overtime?
Some non-exempt salaried employees do receive overtime. If your overtime meets FLSA requirements and is separately reported, you should qualify for the deduction.
Does this apply to state taxes?
This is federal legislation only. State tax treatment varies. Some states may conform to federal changes, while others maintain their own overtime taxation policies. Check with your state’s tax authority.
Can contractors or gig workers claim this?
The law doesn’t specifically address independent contractors. Current guidance indicates this is a gray area awaiting further IRS clarification. For now, it appears limited to W-2 employees.
How to Maximize This Tax Benefit
If you qualify for the overtime deduction:
1. Track Everything
Keep meticulous records of:
- All overtime hours worked
- Your regular and overtime pay rates
- Pay stubs showing overtime separately
- Any year-end summaries from your employer
2. Calculate the Deductible Portion
Remember, only the “bonus” portion (the amount above your regular rate) is deductible. For time-and-a-half, that’s one-third of your total overtime pay.
3. Consider Tax Planning
If you’re close to the phase-out threshold, consider whether timing certain income or deductions could help you maximize this benefit.
4. Work With a Tax Professional
Especially for the 2025 tax year, when W-2s won’t show overtime separately, having professional help calculating and claiming this deduction could be valuable.
5. Don’t Sacrifice Work-Life Balance
The tax benefit is nice, but shouldn’t be the primary reason to work excessive hours. Consider the full impact on your health, family time, and career sustainability.
The Bigger Picture
According to the Congressional Budget Office, the overtime provision will cost the federal government an estimated $89 billion over 10 years. The Tax Foundation notes that the entire One Big Beautiful Bill Act represents the country’s sixth-largest tax cut and is expected to reduce federal revenue by $5 trillion from 2025 through 2034.
Critics worry about the lost revenue and potential inequality between workers who can and can’t work overtime. Supporters argue it rewards hard work and provides relief to working-class Americans.
The “no tax on overtime” provision provides a real but limited tax benefit for eligible workers. If you’re a W-2 employee earning overtime under FLSA rules, keeping good records could result in tax savings up to $2,750 for single filers (or $5,500 for joint filers in the highest tax bracket).
However, the benefit phases out for higher earners, doesn’t eliminate payroll or state taxes, and expires after 2028. Many professional women—particularly those in exempt salaried positions—won’t qualify at all.
As tax season approaches, review your pay stubs, calculate your qualifying overtime, and consult with a tax professional to ensure you’re claiming every deduction you’re entitled to. And remember: while tax savings are nice, they shouldn’t be the primary driver of overwork. Your health, well-being, and work-life balance matter more than any tax break.
Tax Disclaimer
This article provides general information about the overtime tax deduction and should not be considered tax advice. Tax laws are complex and subject to change. Individual circumstances vary significantly. Always consult with a qualified tax professional or certified public accountant about your specific tax situation before making decisions or claiming deductions. The IRS may issue additional guidance that changes how this deduction works. Information provided here reflects guidance available as of January 2026 and may not reflect the most current IRS rules or interpretations.
