No Tax on Overtime: What Workers Should Expect
The “No tax on overtime” policy is big news for U.S. workers. This new rule removes the federal tax on overtime pay. helping millions keep more money from extra hours. The change was approved by Congress in July 2025 and has now been signed into law by President Trump. (Time.com)
This article has the latest no tax on overtime update, including when no tax on overtime starts and who can benefit.
Key Points:
- The no tax on overtime rule starts January 1, 2025.
- Workers keep all earnings from overtime.
- Eligibility depends on income.
- Policy runs from 2025 to 2028.
Background of the no tax on overtime legislation
Workers used to pay federal taxes on overtime earnings. This includes Social Security and Medicare taxes. The new rule, called “Trump no tax on overtime,” removes these taxes. Both political parties supported the bill, but some worry about the impact on government budgets.
The law, known officially as the One Big Beautiful Bill, is a major package containing several tax reforms. President Trump strongly supported this idea, leading many people to nickname it the “Trump no tax on overtime” plan.
Did the no tax on overtime bill pass?
Yes, the no tax on overtime bill passed the House and Senate in early July 2025. The final Senate vote was very close, decided by the Vice President. President Trump has now signed the bill, making it official law. Many workers and employers are celebrating this important change. Spectrum Local News provides more details on the final vote and reactions.
This bill will make a big difference for millions of workers. Many employees who rely heavily on overtime and tips ( learn more) could see significant increases in their take-home pay.
Did President Trump sign the bill?
Yes, President Trump has signed the bill. With his signature, the “no tax on overtime” policy will now take effect as scheduled, allowing workers to keep more of their overtime earnings. There’s no need for further action by Congress.
Understanding the policy
Under the new rule, starting January 2025, the federal government will stop taking these taxes out of overtime paychecks. Workers will be able to see and feel the difference immediately, as they get to keep the full amount earned for each extra hour.
When does no tax on overtime start?
How much extra money will workers typically keep under the new rule?
Most workers can expect between 15% to 30% more money from their overtime hours, depending on their income tax bracket.
The policy begins January 1, 2025, and ends in 2028. Workers and employees will see changes in their paychecks as soon as next year.
Who is eligible for the no tax on overtime?
| Income Level | Eligibility | Duration |
|---|---|---|
| Under $160,000 (individual) | Full | 2025-2028 |
| Under $300,000 (household) | Full | 2025-2028 |
| Above these limits | Gradual Reduction | 2025-2028 |
Important: Check your latest tax return or talk to a tax advisor to confirm your status.
How to benefit from the no tax on overtime policy?
Prepare now to make the most of the new policy
- Follow each no tax on overtime update from official sources.
- Use a calculator to estimate your savings.
- Talk to a tax expert for advice.
- Ask your HR about payroll updates, and make sure your employer correctly files your 941 tax form to reflect these tax changes.
- Plan wisely how you’ll use the extra money.
Will there be limits on tip earnings for the tax exemption?
Yes, there likely will be deduction limits similar to overtime, but the exact amount is not confirmed yet. The current proposal suggests limits around $12,500 per year for single workers and $25,000 for couples filing taxes jointly.
How will the no tax on overtime rule affect employers?
Even with the no tax on overtime rule, employers still have to report and withhold taxes like usual. But now, overtime pay needs to be clearly listed on employees’ W-2 forms. That means your payroll software might need a little update to handle the changes.
Also, keep in mind, just because there’s a federal rule doesn’t mean your state will follow the same one. State laws around overtime might still apply differently, so it’s important to understand how both sets of rules work together.
Conclusion
The no tax on overtime policy helps workers keep more money. But there are some concerns too. Workers should keep an eye on the policy, talk to experts, and plan carefully for 2025. This will help ensure it works for everyone.
No tax on overtime: FAQ (Quick Answers)
Does the savings from the no federal tax on overtime count for all hours past 40 hours, or just the “half part” in time and a half?
The no-tax benefit applies to all hours worked over 40 hours, not just the “extra half” of time-and-a-half pay. If you worked 45 hours, the tax break applies to those 5 overtime hours in full.
How are commission wages handled under the new overtime tax reduction?
Commission income, like earnings from sales, is still taxed under the current law. The new “No Tax on Tips” bill only gives a tax break for tips and overtime pay, not commissions.
Will we see extra income in our bimonthly pay, or do we receive it when we file our taxes in April?
You typically won’t see extra money in your paycheck right away. Instead, the benefit shows up when you file your taxes, as a larger refund or a lower tax bill. The adjustment affects your tax liability, not your take-home pay
Will this new rule affect my yearly tax refund?
Yes, it could make your refund larger or lower your tax bill when you file your return.
Is there an income limit for getting the tax exemption?
Yes. Full benefits are available to individuals earning less than $160,000 and households under $300,000 annually. Higher incomes get reduced benefits.
Did the no tax on overtime bill pass?
Yes, Congress approved it in July 2025. and President Trump has since signed it into law.
How should workers prepare for the changes in overtime and tip taxes?
Workers should follow updates, consult tax advisors, estimate their savings, and check with their employers to update payroll correctly.
What happens if my employer doesn’t follow the new rules in 2025?
Employers must follow the new law. If you see mistakes or have concerns, talk to your HR department or report directly to the IRS
Does this tax change affect state taxes too?
No. It will affects federal taxes only. You might still owe state or local taxes on overtime, depending on where you live. Check your state’s rules for details.
Will my social security benefits be affected by no longer paying taxes on overtime?
No, the bill specifies that Social Security credits earned will not be reduced. Workers will still earn full credits toward their Social Security benefits from overtime hours.
Will I need special documents to prove my overtime hours?
No extra documents are needed. Your employer’s payroll records are enough.