The “No Tax on Overtime” law, part of Trump’s “Big Beautiful Tax Bill”, took effect in July 2025. It aims to reduce the tax burden on middle-income Americans by exempting part of their overtime wages from federal income tax.
Key Details:
-
Exempts half of the federally mandated overtime premium (“time-and-a-half”).
-
Applies retroactively from January 2025 to December 2028.
-
Exemption cap: $12,500 per worker or $25,000 per couple.
-
Ineligible: Individuals earning over $150,000 and couples above $300,000.
Limitations:
-
Payroll taxes for Social Security and Medicare still apply.
-
State and local taxes remain unless states adopt similar rules.
-
Only benefits hourly, non-exempt workers under FLSA—not salaried employees.
Criticism:
Experts warn the law could push employees into unhealthy amounts of overtime and discourage new hiring. The Tax Policy Center estimates only 9% of U.S. households will benefit, with average savings around $1,400 per year.