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When does no tax on overtime start?

It already applies, and it's retroactive to January 1, 2025. Here's the full timeline and when the money actually reaches you.

Updated October 3, 2026 · Tax years 2025 and 2026 · Based on IRS guidance

Short answer: no tax on overtime is already in effect. It covers overtime earned from January 1, 2025 through December 31, 2028, and you claim it when you file your federal return each year.

Timeline

WhenWhat happens
July 4, 2025Law signed. Deductions for tips, overtime, car loan interest and seniors created.
Tax year 2025First year covered. Employers weren't required to report overtime separately; workers could use pay stubs.
Early 20262025 returns filed with the new Schedule 1-A.
Tax year 2026Employers must report qualified overtime in W-2 box 12, code TT, and qualified tips with code TP.
August 6, 2026IRS updates its overtime FAQs (Fact Sheet 2026-13): the W-2 amount generally controls the deduction.
January–April 20272026 returns filed. Check code TT on your W-2 before you file.
Tax year 2028Last year covered under current law.

How it actually works

It isn't an exemption. Overtime is still taxable income and still has income tax, Social Security and Medicare withheld. The law lets you deduct the overtime premium (the half in time-and-a-half), up to $12,500 or $25,000 for joint filers, on Schedule 1-A. That lowers your taxable income when you file.

Want a number? The no tax on overtime calculator works it out for 2026 or 2025 in a few seconds.

Common questions

When does no tax on overtime start?

It already applies. The deduction covers overtime earned from January 1, 2025. You claimed 2025 overtime on the return filed in early 2026, and 2026 overtime goes on the return you file in early 2027.

Did no tax on overtime pass?

Yes. It's part of the law signed on July 4, 2025 (Public Law 119-21), often called the One Big Beautiful Bill Act. The same law created the no tax on tips, car loan interest and senior deductions.

Is no tax on overtime retroactive?

Yes, for 2025. Although the law was signed in July, it covers qualified overtime for the whole 2025 tax year, including January to June.

Will I see it in my paycheck?

Not automatically. Employers keep withholding income tax on overtime. You get the benefit when you file, as a larger refund or a smaller balance due. To see it in your paycheck now, give your employer an updated Form W-4 that reflects the expected deduction.

When does no tax on tips start?

The same dates as overtime: tips received from January 1, 2025 through December 31, 2028 can qualify.

When does it end?

After tax year 2028 under current law. Congress would have to extend it for 2029 and later.

Does it apply to state taxes?

The rules here are federal. Some states follow the federal deduction and others don't, so check your state's rules separately.

Other new deductions

No tax on overtimeDeduct the half-time premium, up to $12,500 or $25,000 joint.Open calculatorNo tax on tipsDeduct up to $25,000 of qualified tips.Open calculatorCar loan interestDeduct up to $10,000 of interest on a new U.S.-assembled car.Open calculatorSenior deductionAn extra $6,000 per person age 65 or older.Open calculatorAll four togetherSee your total Schedule 1-A savings in one place.Open calculator

Sources

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