No Taxes on Overtime Pay? Here’s What You Need to Know About the Proposed Tax Break

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A newly passed House bill is making headlines, not just for its sweeping scope but for a tax change that could impact millions of American workers. The “One Big Beautiful Bill Act,” a cornerstone of former President Donald Trump’s 2025 legislative agenda, includes a temporary tax break on overtime pay that could lead to significant savings for hourly employees, if it becomes law.

Here’s a breakdown of what the proposal includes, who it affects, and what it could mean for your paycheck and taxes in the coming years.

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Overtime Tax Break: What’s in the Bill?

If passed in its current form, the bill would eliminate income taxes on the overtime pay premiu, the extra wages earned beyond standard working hours. According to the House Ways and Means Committee, this change would impact over 80 million hourly workers across the country.

However, it’s important to note:

• This is not a permanent change.
• The tax deduction would be available only through 2027, unless Congress votes to extend it.
• The benefit comes in the form of a deduction, not a tax withholding change. That means you won’t see a higher paycheck week to week, but you could see savings when you file your taxes.

How Will This Tax Break Work?

Because it’s a deduction, workers will need to report their overtime earnings on their annual tax return to receive the benefit. In effect, the premium portion of your overtime pay (what you earn above and beyond your regular hourly rate) would not count as taxable income.

This could translate to hundreds or even thousands of dollars in tax savings per year, especially for workers in industries with frequent or mandatory overtime.

The proposed change pairs with other tax elements in the bill, including:

• A boosted child tax credit
• No federal tax on tipped income
• An expanded standard deduction

Who Qualifies for Overtime?

Not everyone earns overtime the same way. According to federal labor laws, most employees qualify for overtime after working more than 40 hours per week. However, in certain fields, the rules are different.

For example:

• Firefighters may need to work 53 hours or more before qualifying for overtime, according to Edward Kelly, president of the International Association of Fire Fighters.
• Other first responders or shift-based professions may have unique overtime thresholds.

It’s also worth noting that not all employees are eligible for overtime pay, salaried workers or those classified as exempt under the Fair Labor Standards Act may not qualify.

Will This Encourage More Overtime?

Some economists and policy experts believe the tax incentive could have mixed results.

According to the Tax Foundation, exempting overtime from federal income taxes may encourage more workers to volunteer for extra shifts, knowing they’ll keep more of their earnings. On the flip side, employers (especially in industries with tight margins) might be less willing to approve overtime due to rising overall labor costs.

Ultimately, the long-term effects will depend on how businesses adapt and whether the tax policy becomes permanent.

What’s the Catch?

The biggest concern: cost to the government. The Congressional Budget Office estimates that exempting overtime pay from income taxes could lead to a $124 billion reduction in federal tax revenue over the life of the provision.

This has raised alarms among some Senate conservatives, who argue the bill needs more aggressive spending cuts to offset the loss. While the House passed the bill, the Senate has yet to take up this specific overtime measure.

Will The Tax Break Pass the Senate?

That’s still uncertain.

The Senate did unanimously pass a bill to eliminate federal taxes on tips, but no current Senate bill includes the same treatment for overtime pay. Given the size and complexity of the “One Big Beautiful Bill Act,” and some resistance from fiscal conservatives, it’s unclear whether the overtime tax deduction will survive the legislative process.

Negotiations are ongoing, and the provision could be amended, removed, or postponed in the final version of the bill.

Final Thoughts: What You Should Do Now

Until the legislation becomes law, your tax responsibilities for overtime pay remain unchanged. But if the measure passes, it could provide meaningful relief for hourly workers who routinely clock overtime hours.

What to watch:

• Keep an eye on updates from the Senate in the coming weeks.
• Talk to your HR department or payroll provider about how your overtime is calculated.
• Speak with a tax advisor early in the year if you regularly work overtime, they can help you prepare to claim the deduction and maximize your refund.

If passed, this provision could mark a significant shift in how overtime compensation is taxed, potentially encouraging more work hours and offering greater take-home pay for millions of Americans.