Less Than 9% of Taxpayers Qualify for the Game-Changing ’No Tax on Overtime’ Rule

Tax breaks are like unicorns—rare, magical, and usually just a myth. The latest 'no tax on overtime' rule? Turns out it’s no exception.

The Fine Print Bites Back

Fewer than 9% of filers will actually benefit from this supposedly worker-friendly policy. Guess who’s laughing? The same folks who always do—the ones with the loophole playbooks.

Overtime Pay: Still Taxed for Most

Unless you’re in that tiny sliver of eligible workers, your extra hours still mean extra cuts for Uncle Sam. But hey, at least the headlines made it sound fair, right?

The Cynic’s Corner

Another 'pro-worker' policy that mostly works on paper. Surprise—your overtime paycheck still looks like it went through a government shredder.

Key Takeaways

• Fewer than 9% of all U.S. tax returns will qualify for the new "no tax on overtime" deduction created by the enactment of the One Big Beautiful Bill Act.
• Overtime pay still will be subject to payroll taxes, but the deduction will reduce federal income taxes.
• The rule will save eligible taxpayers an average of $1,440 a year, according to the Tax Policy Center.
• Overtime workers can only deduct the amount that exceeds their typical pay rate, not all their overtime pay.

The One Big Beautiful Bill Act's "no tax on overtime" provision will only apply to a small portion of the workforce, and is more complicated than it sounds.

The deduction is one of several new ones created by the One Big Beautiful Bill Act that are set to begin this year. However, it will be applicable only to about 8.8% of all types of tax returns, according to estimates by the Tax Policy Center. The center said that the average eligible tax return will save about $1,440 by using this deduction.

Workers who log more than 40 hours a week will be able to claim this 2025 deduction when they do their taxes next year, unless they are married but file separately, or do not provide a Social Security number on their filing.

The deduction begins to phase out for single taxpayers who make $150,000 and $300,000 for married taxpayers filing jointly. It goes away entirely for single taxpayers who make more than $400,000 and for joint filers who make more than $550,000, according to the Tax Policy Center.

Rule's Overtime Deduction Lowers Taxable Income

Although "no tax on overtime" sounds simple enough, that isn't all there is to it. Overtime pay will still be subject to state and local taxes as well as to payroll taxes, which fund Social Security, Medicare, and FICA.

The provision allows taxpayers to deduct the overtime pay they receive in order to reduce their total taxable income, which in turn lowers what they owe the IRS.

There are some stipulations, however. Taxpayers cannot deduct all of the income they earn while working overtime. Instead, they can only deduct the pay that exceeds their regular rate of pay. For example, a worker who receives “time-and-a-half" can deduct the "half."

Single taxpayers cannot deduct more than $12,500 of overtime annually, and for married workers filing jointly, that ceiling is $25,000.