No More Taxes on Overtime Pay

Eliminating taxes on overtime pay in the One Big Beautiful Bill Act (OBBA) fulfills one of President Trump’s campaign promises.  Individuals with hourly or non-professional jobs or earning an annual salary income less than $35,568, will be able to file for a federal income tax deduction capped at $12,500 for single filers and $25,000 for married couples filing jointly.  The deduction is phased out for higher incomes and not allowed above $200,000 for individuals and $350,000 for joint filers.  It is allowed for taxpayers who both itemize and take the standard deduction, and available for tax years 2025-2028.

The OBBBA allows qualified workers to deduct the “half” in the time and one half of an employee’s regular rate, which is typically the amount of extra pay for overtime, as defined in the Fair Labor Standards Act.  For example, an emergency medical technician (EMT), who makes $20 an hour and works more than 40 hours a week, receives $30 for every extra hour they work ($20 for the “time” and $10 for the “half”).  The “half” portion of this extra pay, or $10 per every overtime hour, may now be deducted from this EMT’s taxable income.

According to the White House Council of Economic Advisers, the overtime deduction will save an average worker from $1,400 to $1,750 annually and increase the gross domestic product by 0.1 to 0.2 percent.  The benefits from this provision will help the economy by allowing these workers to keep more of their hard-earned money instead of handing it over to the government.