No taxes on overtime pay: What to know about tax break in GOP budget bill
(NEXSTAR) — The House passed the 'One Big Beautiful Bill Act' – a legislative package that combines tax breaks, spending cuts, border security funding and other priorities central to President Donald Trump's agenda – last week, sending the bill to the Senate.
Among the various aspects of the bill that may impact you, should it pass in its current state, is one that targets overtime pay.
It's a provision Trump campaigned on alongside tax breaks for tipping, but how will it impact you?
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According to the House Ways and Means Committee, the move removes income taxes on the overtime pay premium for over 80 million hourly workers.
This isn't a permanent move, though. It's a temporary full deduction on the overtime pay you receive, Nexstar's The Hill explains. The deduction is set to end after 2027, unless it receives an extension before then.
Because it's a deduction, you would not see an immediate impact on your paycheck. Instead, you would claim the overtime pay on your taxes during the following year.
Combined with other aspects of the 'One Big Beautiful Bill Act,' like the boosted child tax credit, no tax on tips, and an enhanced standard deduction, Ways and Means estimates that taxpayers could benefit from hundreds to thousands of dollars in cuts.
Qualifying for overtime pay does, however, vary by industry.
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For many, overtime may begin to accrue after 40 hours of work. For others, that threshold may be higher. Firefighters, for example, have to work 53 hours a week before qualifying for overtime, Edward Kelly, general president for the International Association of Fire Fighters, said in a statement obtained by NBC News.
The Tax Foundation said last year that exempting overtime from income tax, then a campaign promise of Trump's, could encourage more employees to want to work overtime hours. It could, similarly, cause employers to 'be more aggressive to contain overtime requests as total labor costs rise.'
The Congressional Budget Office warned that exempting overtime pay from income taxes could lead to $124 billion in lost tax revenue.
It's too soon to say whether the overtime tax cuts will remain in the bill. Before the House passed Trump's budget bill, the Senate unanimously passed a bill to eliminate federal taxes on tips. It didn't stipulate the same treatment for overtime pay, and there is currently no bill in the Senate regarding overtime pay.
Conservatives in the Senate have also expressed frustration over the 'big, beautiful bill,' saying it needs deeper cuts.
The Associated Press contributed to this report.
Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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