Navigating Trump’s 'No Tax On Overtime' Deduction: Who Qualifies and How to Claim It

If you worked extra hours in 2025, President Donald Trump’s new “no tax on overtime” deduction could lower your tax bill in 2026. The change was included in the One Big Beautiful Bill Act and allows eligible workers to deduct a portion of their overtime pay from their federal taxable income.

But there’s a catch. For 2025, most employers are not required to break out overtime separately on tax forms like the W-2 or 1099. That means many workers will need to calculate the deduction themselves.

If you want to stay up to date on tax changes and other government benefits, BenefitKarma tracks major updates so you can make informed decisions at filing time.

What is the “no tax on overtime” deduction?

The new policy allows certain workers to deduct qualified overtime pay from their federal taxable income for tax years 2025 through 2028.

Here’s what that looks like:

• Up to $12,500 per year for single filers
• Up to $25,000 per year for married couples filing jointly

However, the deduction phases out at higher income levels:

• Reduced for single filers earning over $150,000
• Reduced for joint filers earning over $300,000

This is a deduction, not a credit. That means it lowers your taxable income — it does not directly reduce your tax bill dollar-for-dollar.

Who qualifies for the deduction?

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The deduction applies to nonexempt workers covered under the Fair Labor Standards Act (FLSA). In simple terms, that usually means workers who:

• Are paid hourly
• Receive at least 1.5 times their regular rate of pay after working more than 40 hours in a week

Exempt employees — such as many salaried managers or professionals — generally do not qualify.

It’s also important to know that the deduction only applies to the extra portion of overtime pay above your regular rate.

For example:

• If your regular pay is $20 per hour and your overtime rate is $30 per hour (1.5x), only the extra $10 per hour qualifies.
• You cannot deduct the full $30 per hour — only the “half-time” premium portion.

Some workers covered under specific state laws or union contracts may have different rules. The IRS has indicated that not all overtime arrangements automatically qualify, so reviewing official guidance is key.

Why is this confusing for 2026 tax season?

For tax year 2025, employers were provisionally excused from separately reporting overtime pay on forms like:

• W-2
• 1099-NEC
• 1099-MISC

That means your tax form may only show total wages — not how much of that income came from overtime.

As a result, many workers will need to calculate their qualified overtime pay on their own when filing in 2026.

Without clear reporting, errors are more likely. That makes good record-keeping especially important this year.

How do you calculate your qualified overtime?

If your employer does not separately list overtime on your W-2, you may need to rely on:

• Year-end payroll summaries
• Individual pay stubs
• Employer payroll portals
• Documentation from your HR department

Here’s how the math works based on your overtime rate:

If you were paid 1.5 times your regular rate:

• Divide your total overtime pay by 3
• The result equals the deductible “premium” portion

If you were paid 2 times your regular rate:

• Divide your total overtime pay by 4
• The result equals the deductible portion

Why? Because only the extra portion above regular wages qualifies.

Example (1.5x overtime):If you earned $9,000 in overtime wages at time-and-a-half, dividing by 3 means $3,000 would qualify for the deduction — subject to annual limits and income phaseouts.

Keep all supporting records in case the IRS requests documentation later. That includes pay stubs, payroll summaries, and any employer-provided breakdowns.

How much could you actually save?

The deduction lowers taxable income, so your savings depend on your tax bracket.

For example:

• If you deduct $5,000 and you’re in the 22% federal tax bracket, that could reduce your tax bill by about $1,100.
• Higher earners near the phaseout thresholds may see reduced benefits.

Because this is temporary (2025–2028 tax years), workers who regularly earn overtime may want to plan ahead for how it affects their withholding and estimated payments.

What should you do before filing?

To prepare for the 2026 filing season:

• review your 2025 pay stubs now
• confirm your overtime rate (1.5x, 2x, etc.)
• request year-end payroll summaries if needed
• consider speaking with a tax professional if your income is near phaseout limits

Waiting until April 2026 could make the process more stressful if documentation is missing.

The bottom line

Trump’s “no tax on overtime” deduction could offer meaningful relief to workers who regularly log extra hours. With potential deductions up to $12,500 for single filers and $25,000 for joint filers, the savings could be significant.

But because employers are not required to separately report overtime for 2025, workers must take extra care to calculate and document their eligible earnings correctly.

Tax rules can change quickly — and small details matter. BenefitKarma keeps you informed about federal tax updates, government programs, and practical steps you can take so you’re prepared when filing season arrives.