The "Overtime Pay Tax Relief Act of 2025" allows a tax deduction for overtime compensation, capped at 20% of other wages, for individuals earning below specified income limits, and it is available to both itemizers and non-itemizers. This provision applies to amounts received after enactment through December 31, 2029.
Don Bacon
Representative
NE-2
The "Overtime Pay Tax Relief Act of 2025" permits a tax deduction for overtime compensation, up to 20% of other wages, for individuals earning below specified income thresholds (\$200,000 for married couples, \$150,000 for heads of household, and \$100,000 for other individuals). This deduction is available to both itemizers and non-itemizers, and the Treasury will adjust withholding tables accordingly. This provision is effective for amounts received after enactment and expires after December 31, 2029.
New 'Overtime Pay Tax Relief Act of 2025' Offers Tax Breaks on OT, But There's a Catch
The "Overtime Pay Tax Relief Act of 2025" just dropped, and it's a mixed bag for those of us clocking extra hours. Here’s the deal: It lets many workers deduct some of their overtime pay from their taxes, but it’s not a free-for-all, and it’s temporary.
Overtime Gets a Tax Break (Sort Of)
This bill introduces a new tax deduction specifically for overtime pay. If you're pulling extra shifts and getting paid time-and-a-half (or more, as required by the Fair Labor Standards Act of 1938), you can deduct a portion of that OT income. The catch? It’s capped at 20% of your regular wages from the same employer. So, if you make $40,000 a year and earn $10,000 in overtime, you can only deduct up to $8,000 (20% of $40,000) of that overtime pay. (SEC. 2)
Who's In, Who's Out?
This isn't for everyone. There are income limits:
- Married couples filing jointly: If you make over $200,000 combined, you're out of luck.
- Heads of household: The cutoff is $150,000.
- Single filers: You're capped at $100,000.
If you're under those limits, though, you can take this deduction whether you itemize or not. This is a big deal for folks who usually take the standard deduction—you get a tax break without the hassle of itemizing. (SEC. 2)
Real-World Rollout
Let’s say you’re a retail manager making $45,000 a year, and you pull in an extra $9,000 in overtime during the holiday season. You could deduct up to 20% of your base pay—$9000, in this case—from your taxable overtime income. This means less of your hard-earned OT goes to taxes.
Or picture a construction worker who earns $60,000 annually and picks up $15,000 in overtime. They can deduct up to $12,000 (20% of $60,000) of that OT pay. That's a real, tangible benefit for putting in those extra hours on the job site.
The Treasury is supposed to adjust the withholding tables, so your paycheck should reflect the new deduction. This means you might see a little more in your take-home pay throughout the year, rather than waiting for a bigger refund at tax time. (SEC. 2)
The Clock is Ticking
Here’s the major downside: this tax break is set to expire after December 31, 2029. It's a temporary fix, not a permanent change. This means any benefits you see are only guaranteed for the next few years. Unless Congress extends it, we’re back to square one come 2030. (SEC. 2)
While this bill offers a potential boost for some, the income limits and the expiration date create a bit of uncertainty. It’s worth checking if you qualify and planning accordingly, especially since this benefit isn’t here to stay—at least not yet.