Employees who work overtime will be excited to hear that President Trump’s One Big Beautiful Bill Act (OBBBA), which was recently signed into law, includes overtime pay tax relief.
What employee doesn’t want to keep more of their take-home pay, after all, especially if it’s more than your usual rate?
While it is good news for some, the reality is that not everyone qualifies. Many middle- and low-income workers could still be left out. Here’s what you need to know.
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What Is Trump’s Overtime Tax Break?
The overtime tax break stipulates that, retroactive to January 2025 through 2028, anyone who receives “qualified” overtime can deduct the amount that “exceeds their regular rate of pay.”
Confused? That means you basically can only write off the “half” of your time-and-a-half. So if your hourly rate is $40 per hour, and the overtime half is $20 per hour, totaling $60 per hour, you can still only write off that additional $20 per hour of overtime.
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Who Qualifies and Why?
While the “half” of one’s overtime isn’t as much as the whole shebang, there is an income cap. You can only take the deduction if you are an individual making an adjusted gross income (AGI) of $150,000 or less, or $300,000 for those filing jointly.
The Tax Break Has a Ceiling
While you can write off some of your overtime, there’s also a cap on how much. For the individual filer, the most you can deduct is $12,500, while joint filers can deduct up to $25,000.
The good news is that it doesn’t matter whether you itemize your taxes or take the standard deduction — if you otherwise qualify, you can take the deduction either way.
The Surprising Groups Left Out
While so far this is all good news for qualifying taxpayers, a few key groups will either be left out or experience low benefits:
- Salaried exempt employees: Many salaried employees may not qualify for overtime pay but may be expected to put in overtime in one way or another.
- Gig economy and contract workers: Gig workers, freelancers and/or contract workers are not considered employees, thus it won’t matter if they drive 80 hours per week for a rideshare company or clock 60 billable freelance hours, the IRS won’t consider it overtime.
- People working low overtime hours: People who are already working overtime, but not that much, may still get the write-off but it may not make a huge difference in their paychecks.
- People earning a low hourly wage: For people earning a low hourly wage, the deduction may not add up to enough to make much difference.
Other Rules for Taking the Deduction
If you’re one of the lucky qualifying taxpayers, to get the deduction you must be sure your Social Security number is on the return and file jointly if you’re married.
If you’re not sure how much overtime you worked, employers and other payors will have to file information returns with the IRS or Social Security Administration and are required to share statements with taxpayers that discloses all the overtime you were paid during that tax year.
What To Do If You Don’t Qualify
If you don’t qualify for this overtime tax deduction, but you’re looking for some tax breaks, be sure to talk with your accountant about other new deductions in the OBBBA, such as additional deductions for seniors, a deduction on auto loan interest for qualifying new American-made or American-assembled cars and no tax on tips for qualifying taxpayers. That word “qualifying” is key in all of these deductions, so be sure you meet with an accountant or financial planner who is up on all the latest tax information.
Additionally, it’s always good to review your taxes with your financial advisor to see if there’s a deduction or tax strategy you’re missing.
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This article originally appeared on GOBankingRates.com: Not Everyone Gets a Raise: Who Misses Out on Trump’s Overtime Tax Break
