Last month Congress passed the “Big Beautiful Bill”, and it included a new tax law that says overtime will no longer be taxed. What that means isn’t so clear, so let’s go through what you need to know:
- The no tax on overtime is retroactive to January 1st, 2025 and will expire after 2028 unless the next administration renews it.
- The tax break only applies to a portion of your OT. For example, if you make $30 an hour and get time and a half, your OT would be $45 an hour but only the $15 “half” of your time and a half is tax free.
- Not all OT is tax free. Only the first $12,500 per taxpayer qualifies.
- Only people who make less than $150,000 qualify.
- Your paycheck won’t be getting bigger. This is a tax deduction, so you will continue to pay taxes on your OT and will deduct it on your tax return. You will probably get a larger tax refund though.
- State taxes still apply.
Hope this makes it easier to understand. If you have any questions, leave a comment below!
