The “no tax on overtime” provisions are included in Section 70202 of the One Big Beautiful Bill Act (OBBB), which was signed into law on July 4, 2025.
No tax on overtime pay
OBBBA allows eligible workers to deduct "qualified overtime pay" on federal returns. The break is capped at $12,500 for single filers or $25,000 for married couples filing jointly. This tax break phases out for higher earners. This is a tax break only for overtime pay, not all wages.
Overtime isn't taxed at a higher rate, but it can feel like it because higher earnings in one paycheck lead to higher tax withholding, potentially pushing you into a higher tax bracket for that income; however, new 2025-2028 federal legislation allows a temporary deduction (up to $12,500/$25,000) for qualified overtime pay on your tax return, reducing your overall taxable income for that period.
The One, Big, Beautiful Bill will cut taxes for Americans earning under $50,000 by 14.9%. 66% of The One, Big, Beautiful Bill's tax cuts benefit families making less than $500,000. The tax cuts and economic growth from The One, Big, Beautiful Bill will increase the take- home pay for a family of four by $10,900.
“No tax on tips” is the name given to a new tax deduction for tip income created by the “One Big Beautiful Bill” (also known as the Working Families Tax Cut), which was signed into law in July 2025. The tip deduction is available for the 2025 through 2028 tax years.
Despite the “No Tax on Overtime” label, the overtime deduction does not completely eliminate taxes on overtime pay. Some people may still owe federal and/or state income tax on their overtime pay, and payroll taxes still apply to it. The overtime deduction is temporary – it only applies for the 2025 to 2028 tax years.
No tax on tips or overtime bill advances in Assembly with bipartisan support. Assembly lawmakers approved a bill Thursday to eliminate income taxes on cash tips and some overtime work, reflecting provisions established nationally by President Donald Trump's administration and embraced by lawmakers from both parties.
If the individual tax cuts expire, taxpayers in all income groups would face higher and more complicated taxes. Machinery and equipment expensing is a key provision that, if allowed to expire, would especially harm capital-intensive industries like manufacturing.
Some of the major tax changes effective from April 1, 2025, are revised tax slabs, rebate of up to Rs. 60,000, revised ITRU deadlines, calculation of partner's remuneration allowable as a deduction and revised TDS/TCS threshold limits.
Taxing overtime is generally seen as bad policy because it creates inequity, potentially discourages work, benefits the wealthy more, distorts labor markets, reduces vital tax revenue for public services, and can harm future Social Security benefits, all while failing to address underlying wage issues effectively. It makes tax codes complex, allowing high earners to exploit loopholes by converting salary to tax-free overtime, and can incentivize companies to overwork employees rather than offer raises, harming worker well-being.
Overtime isn't taxed at a higher rate, but it can feel like it because higher earnings in one paycheck lead to higher tax withholding, potentially pushing you into a higher tax bracket for that income; however, new 2025-2028 federal legislation allows a temporary deduction (up to $12,500/$25,000) for qualified overtime pay on your tax return, reducing your overall taxable income for that period.
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified ...
No Tax on Overtime is a provision that was included in a larger tax reform bill that passed in July 2025. It allows certain workers to deduct up to $12,500 in qualified overtime compensation from their taxable income on their federal income tax return. Joint filers can deduct up to $25,000.
The 2025 Federal Tax Debate
Much like the 2017 tax law, the new law favors the richest taxpayers. More than 70 percent of the net tax cuts will go to the richest fifth of Americans in 2026, only 10 percent will go to the middle fifth of Americans, and less than 1 percent will go to the poorest fifth.
High-Income Taxpayers Paid the Majority of Federal Income Taxes. In 2022, the bottom half of taxpayers earned 11.5 percent of total AGI and paid 3 percent of all federal individual income taxes. The top 1 percent earned 22.4 percent of total AGI and paid 40.4 percent of all federal income taxes.
Trump Tax Plan Changes: Standard Deduction
The 2017 Trump tax law (TCJA) nearly doubled the standard deduction for all filers, and OBBB bumped them up. If you're a single filer or if you're married filing separately, your standard deduction for 2025 rose to $15,750 under OBBBA.
Yes, under new legislation (the "One, Big, Beautiful Bill" or OBBBA), interest on new, U.S.-assembled personal vehicle loans taken out after 2024 might be tax deductible up to $10,000 annually through 2028, even if you take the standard deduction, provided you meet income limits (phasing out above $100k single/$200k joint MAGI). This is a new benefit for personal cars, unlike traditional deductions for business or mortgage interest, and requires specific vehicle and income qualifications.