Fewer than 1 in 10 workers will benefit
The Trump administration and its allies in Congress marketed their signature budget legislation[1] to working people with the promise of “no tax on overtime.” Ohioans who believed that policy would mean a big tax cut may be seriously disappointed. Just 9% of workers will benefit. The average tax decrease among those workers is $1,440, with the largest benefits going to households with income between $100,000 and $500,000 annually.[2]
Here are some answers to frequently asked questions about “no tax on overtime”:
Only employees who file a W-2 qualify to deduct a portion of their income under the “no tax on overtime” policy. That means independent contractors are left out entirely. So is anyone who’s excluded from overtime rules under the Fair Labor Standards Act (FLSA)— including all gig workers and employees of railroads and airlines, plus many salespeople, auto mechanics, and delivery drivers.[3]
In a rare example of the administration limiting tax benefits for the wealthiest households,[4] those with annual income over $300,000 ($150,000 if filing as single) will receive less than the full benefit of the deduction as it phases out before reaching the income cap of $550,000 (or $275,000 if filing as single).
Starting with any overtime earned on or after January 1, 2025, eligible employees filing as single can deduct up to $12,500 ($25,000 if married filing jointly) of their federally taxable income from overtime premium pay. That’s right: “No tax on overtime” really means no tax on additional pay above the normal rate. For example: If a warehouse worker making $20 an hour gets time-and-a-half ($30/hour) for working overtime, they can only deduct the additional $10 an hour.
“No tax on overtime” only applies to payments mandated by the FLSA.[5] Contractually required overtime payments don’t qualify (unless they are also already required by the FLSA). For example, under some collective bargaining agreements (CBAs), employees who work more than eight hours in a day qualify for overtime, even if their weekly hours add up to less than 40. But for the Trump administration, those hours don’t count. That means nurses who work three 12-hour shifts in a week and qualify for time-and-a-half for some of those hours still pay the full amount of taxes on that overtime pay.
“No tax on overtime” only applies to federal income tax; deductions do not affect Social Security and Medicare taxes, state taxes, or local taxes.
The benefit expires with the 2028 tax year — unlike many permanent cuts in the bill that primarily benefit the wealthiest Americans.[6]
Ultimately, the Trump administration’s “no tax on overtime” will lower taxes for fewer than one in 10 workers, for less than five years. If the Trump administration or other policymakers want to enact policy that would better support workers, they would prioritize less convoluted and more meaningful policy change such as mandatory staffing protections for nurses, increasing the salary threshold for overtime pay, or bringing back the pandemic-era child tax credit. These strategies would provide permanent and substantial benefits to workers.
[1] H.R. 1 of the 119th Congress, once promoted as the “One Big Beautiful Bill Act,” was rebranded after some of its less-beautiful elements became public.
[2] See Tax Policy Center’s revealing analysis of “No tax on overtime” and “No tax on tips.”
[3] U.S. Dept. of Labor. “Handy Reference Guide to the Fair Labor Standards Act.”
[4] Most of the tax cuts in H.R. 1 benefit the wealthiest households and make up for it by cutting crucial services. “Fallout from federal budget cuts will last years.” Kate Sopko. Nov. 13, 2025.
[5] Internal Revenue Service. “One, Big, Beautiful Bill Act: Tax deductions for working Americans and seniors.” Updated July 25, 2025. IBEW’s explainer includes a simple summary of exclusions and other details about the policy.
[6] See Center for American Progress’ November 2025 Report, “7 Ways the Big Beautiful Bill Cuts Taxes for the Rich.”