What Happens to No Tax on Overtime After 2028? (w/Examples) + FAQs

This article reflects federal rules and general state rules as of June 2026 and covers tax years 2025 through 2028. Tax law changes — confirm current figures before you file.

Quick Answer

The “No Tax on Overtime” deduction ends after December 31, 2028. Starting with tax year 2029, your overtime pay becomes fully taxable again — unless Congress passes a new law to extend it. For 2025–2028, you can deduct up to $12,500 ($25,000 if married filing jointly).

The deduction is not a permanent change to the tax code. It is a temporary break written into the 2025 law known as the One Big Beautiful Bill Act, and it carries a built-in expiration date the way milk carries a sell-by date. If lawmakers do nothing before the clock runs out, the rule simply disappears, and the half-time “premium” portion of your overtime returns to being taxed like any other wages.

That timing matters more than most people realize. The U.S. Department of the Treasury estimates the deduction reaches millions of hourly workers, and many of them are planning their budgets, side jobs, and extra shifts around a tax break that has a hard stop. If you are picking up overtime in 2027 or 2028, you are working inside a closing window, and knowing the exact end date helps you claim every dollar while it lasts and brace for the higher bill that follows.

Here is what you will learn:

🗓️ The exact sunset date and what changes the moment 2029 begins
💵 A side-by-side worked example of tax saved now versus the extra tax owed after the break ends
🧾 How to claim the deduction on the new Schedule 1-A, with the records you must keep
🏛️ Whether your state taxes your overtime even while the federal break is active
⚠️ The mistakes that cost workers the deduction and how to avoid each one

What “No Tax on Overtime” Actually Means

The name is a little misleading, and that confusion costs people money. “No tax on overtime” does not mean your entire overtime paycheck is tax-free. It means you get a federal income tax deduction for one specific slice of your overtime: the extra “half” in time-and-a-half pay.

The IRS guidance issued in November 2025 is clear that the deductible amount is the pay that exceeds your regular rate — the premium portion required by the federal Fair Labor Standards Act (FLSA). The FLSA is the federal wage-and-hour law that forces most employers to pay at least time-and-a-half once you cross 40 hours in a workweek.

So if you earn $20 an hour and work overtime at $30 an hour, only the extra $10 per overtime hour is the “qualified overtime compensation” you can deduct. The first $20 is your regular wage, and it stays taxable. This is the single biggest misunderstanding about the whole provision, and getting it wrong inflates what people expect to save.

One more key point: this is an above-the-line deduction. That plain-English phrase means you can claim it whether or not you itemize. The IRS confirms the deduction is available to both itemizing and non-itemizing taxpayers, so you keep your standard deduction and still get this break on top.

Why the Premium-Only Rule Exists

Congress wrote the deduction to mirror the FLSA’s “premium” definition on purpose. The half-time premium is the part of overtime that is extra — the reward for the long hours — so that is the part lawmakers chose to shield from tax. The consequence of this design is mathematical: your deduction is always smaller than your total overtime pay, usually about one-third of a “time-and-a-half” overtime line on your pay stub.

A common misconception is that workers can deduct all overtime hours at their full pay rate. They cannot. If you claim the full overtime amount instead of just the premium, you have overstated your deduction, and that can trigger an IRS notice, a corrected return, and interest on the underpaid tax. To do it right, find the FLSA premium figure on your pay records, or divide a “time-and-a-half” total by three to isolate the premium.

The Sunset: What Happens After 2028

This is the heart of the question, so here is the plain truth. The overtime deduction is alive for four tax years only: 2025, 2026, 2027, and 2028. The IRS states the deduction applies for tax years 2025 through 2028, and there is no automatic renewal written into the law.

When the calendar turns to January 1, 2029, the rule expires on its own. Tax professionals call this a “sunset.” Nothing dramatic happens to your 2028 return — you still claim the deduction for overtime earned through December 31, 2028. But overtime you earn on or after January 1, 2029 gets no deduction at all, and the premium portion goes back to being fully taxed at your ordinary income tax rate.

The practical consequence is a quiet tax increase for overtime workers in 2029, even with no new law passed. Your gross pay can stay identical, your hours can stay identical, and your federal tax bill still rises simply because a deduction vanished. Workers who budgeted around the break — counting on a refund or a smaller balance due — can be caught off guard the first time they file a 2029 return in early 2030.

Could Congress Extend It?

Maybe — but you cannot count on it. Temporary tax breaks sometimes get extended, sometimes get made permanent, and sometimes are allowed to die. History offers examples of all three outcomes, so betting your finances on an extension is a gamble, not a plan.

As of June 2026, no law has been passed to extend the overtime deduction past 2028, and the IRS guidance still lists 2028 as the final year. If an extension is going to happen, it would most likely surface during a future tax bill, possibly close to the 2028 deadline when the pressure is highest. The responsible move is to plan for the deduction to end on schedule, then treat any extension as a bonus rather than a baseline. Watch IRS.gov newsroom updates for any change, because that is where official news lands first.

What Stays the Same After 2028

It helps to know what does not change in 2029. Your right to overtime pay itself is untouched — that comes from the FLSA, not from the tax law, so employers must still pay time-and-a-half for hours over 40. The sunset only removes the income tax deduction; it does not remove the wage protection. The consequence is simple: you keep earning overtime, you just lose the tax discount on it.

Who Qualifies — and Who Does Not

The deduction is generous but fenced in by rules. Miss a fence and you lose the break, so read this section against your own situation.

You generally qualify if you are a worker who receives FLSA-required overtime that is reported on a Form W-2, Form 1099, or another official statement. The IRS describes qualified overtime as the premium pay exceeding your regular rate that is required by the FLSA. Hourly and shift workers — nurses, factory workers, first responders, retail and warehouse staff — are the core group this was built for.

You are excluded, or partly excluded, in these cases:

Married filing separately filers generally cannot claim it, a status trap that surprises many couples.
No valid Social Security number on the return blocks the deduction, a documentation rule baked into the law.
High earners lose it gradually once income climbs past the phase-out threshold (covered below).
Overtime that is not FLSA-required — extra pay under a union contract, a company policy, or a state-only rule that goes beyond federal law — does not count. The IRS guidance ties the deduction to the FLSA premium, so non-FLSA overtime is out.
FLSA-exempt employees — many salaried managers and professionals — usually do not earn FLSA overtime at all, so there is nothing to deduct.

The consequence of ignoring these limits is a denied deduction and a possible IRS correction. If you are married, run the numbers on filing jointly versus separately, because separate filing can quietly erase this benefit.

The Dollar Cap and Income Phase-Out

The deduction has two ceilings: a flat dollar cap and an income-based phase-out. Both are anchored to the tax year, and both can shrink your benefit.

The flat caps for tax years 2025–2028 are $12,500 for single and other non-joint filers, and $25,000 for married filing jointly. TurboTax confirms the deduction can cut taxable income by as much as $12,500 ($25,000 for joint filers). If your qualified overtime premium exceeds the cap, you deduct only up to the cap and the rest is taxed.

The phase-out begins once your modified adjusted gross income (MAGI) tops $150,000 ($300,000 for joint filers), per the IRS overtime guidance. MAGI is your adjusted gross income with a few items added back; for most wage earners it is close to total income. Above the threshold, the deduction drops as income rises, and high enough earners get nothing.

The consequence is that a worker who picks up a flood of overtime can accidentally raise their own income into the phase-out zone, clipping the very deduction the overtime was meant to earn. If you are near $150,000 single or $300,000 joint, model the trade-off before chasing every extra shift.

Which Situation Applies to You?

The right answer depends on your facts. Find your row, then read the section it points to.

Hourly worker, income well under the threshold: You are the core winner. Focus on the worked example and the “How to Claim” steps.
Married couple, one or both earning overtime: File jointly to keep the $25,000 cap and avoid the married-filing-separately trap. Read “Who Qualifies.”
High earner near $150,000 / $300,000 MAGI: Read the phase-out section closely and consider timing your overtime across years.
Union or company-policy overtime: Confirm the pay is FLSA-required; if it is not, the deduction does not apply.
Resident of a decoupled state: Read “Does My State Tax This?” — you may owe state tax even while the federal break applies.
Planning for 2029 and beyond: Read “The Sunset” and “What to Do Next” to prepare for the deduction ending.

Worked Example: Tax Saved Now vs. After 2028

Numbers make this real. Here is one worker, the same overtime, in two different tax worlds — while the break exists and after it sunsets.

Meet Maria, a single hospital nurse. Maria earns a $32 regular hourly rate. In 2027, she works enough mandatory overtime to be paid $48 per overtime hour (time-and-a-half) across 500 overtime hours. Her qualified overtime premium is the extra $16 per hour ($48 − $32), which is $8,000 for the year. Her total taxable income lands comfortably under the $150,000 phase-out.

During the break (tax year 2027):

Qualified overtime premium: $8,000 (under the $12,500 single cap, so all of it counts)
Deduction claimed: $8,000
Assume Maria’s marginal federal rate is 22%
Federal tax saved: $8,000 × 22% = $1,760

After the break (tax year 2029, same overtime):

Qualified overtime premium: $8,000
Deduction allowed: $0 (the provision has sunset)
Extra federal tax owed compared to 2027: $8,000 × 22% = $1,760

Same nurse, same shifts, same paycheck — but a $1,760 swing in her federal tax bill purely because the deduction expired. That gap is the real-world meaning of “what happens after 2028.” Maria’s takeaway is to claim every eligible dollar in 2027 and 2028 and to set aside roughly that amount in her 2029 budget so the higher bill does not surprise her.

How to Claim the Overtime Deduction

You claim the deduction on your federal income tax return using the new Schedule 1-A, which the IRS created specifically for the One Big Beautiful Bill deductions, attached to your Form 1040. The IRS has been updating its forms and instructions so taxpayers can claim these new deductions. (If you need help with the main return, see our guide on how to fill out Form 1040.)

Here is the process, step by step:

Find your qualified overtime premium. Look for an “overtime premium” figure on your pay stub or year-end statement. The IRS notes that W-2 and 1099 forms were unchanged for 2025, so you may need to compute it yourself.
Do the math if only a total is shown. Per the IRS examples, if your stub shows a “time-and-a-half” overtime total, divide it by 3 to get the premium. If your employer pays double time, divide that overtime total by 4.
Apply the cap. Limit your deduction to $12,500 single or $25,000 joint for the tax year.
Check your MAGI. Reduce the deduction if your income tops $150,000 ($300,000 joint).
Enter it on Schedule 1-A and carry the result to your Form 1040.
Keep your records — pay stubs, year-end statements, and any logs — in case the IRS asks you to substantiate the figure.

The filing deadline is the normal one: April 15 following the tax year (for example, April 15, 2028 for tax year 2027), unless you file an extension. Miss the deadline and you risk late-filing penalties; forget to claim the deduction and you can fix it later by filing an amended return, but that is extra work you can avoid by claiming it the first time.

The Math the IRS Uses

The division shortcuts come straight from official examples, so they are worth memorizing. In the IRS guidance, “Andrew” had a $15,000 time-and-a-half overtime total, and his qualified premium was $5,000 — exactly $15,000 ÷ 3. In the same guidance, “Brad” was paid double time totaling $20,000, and his premium was $5,000 — that is $20,000 ÷ 4.

The consequence of using the wrong divisor is a wrong deduction. If Brad had divided his double-time pay by 3, he would have overstated his deduction and risked an IRS adjustment. Match the divisor to how your employer pays overtime, and the premium falls out cleanly.

Does My State Tax This?

This is where many workers get a nasty surprise. The overtime deduction is a federal break. Your state may or may not follow it, and several large states have chosen not to.

Most states begin their own tax calculation from your federal income, so states that “conform” to federal law often let the deduction flow through automatically. But a number of states are decoupling — keeping the overtime premium taxable on the state return even though it is deductible federally. Reporting indicates that states including MA, IL, CA, CT and NY are decoupling from the federal “no tax on tips or overtime” changes.

The consequence is a split outcome: a worker in a conforming state may save on both federal and state taxes, while a worker in a decoupled state saves only federally and still pays state tax on the same overtime. If you live in a no-income-tax state — such as Texas, Florida, Washington, or Nevada — the state question is moot, because there is no state income tax on the overtime in the first place, which is a clean and complete answer.

Because conformity is set state by state and can change year to year, confirm with your state department of revenue before you assume your state follows the federal rule. Guessing here can leave you with an unexpected state balance due.

Federal vs. State at a Glance

What the rule does	Where it applies
Deducts the FLSA overtime premium, up to the cap	Federal return, tax years 2025–2028
May or may not allow the same deduction	Your state return, depending on conformity
Keeps overtime premium fully taxable at state level	Decoupled states such as CA, NY, IL, MA, CT
No state income tax on overtime at all	No-income-tax states such as TX, FL, WA, NV

Three Common Scenarios

These three situations cover most readers. Find the one closest to yours.

Scenario 1 — Hourly worker, conforming state, income under the cap

Your situation	What it means for you
You earn FLSA overtime, live in a conforming state, and stay under $150,000 MAGI	You likely save on both federal and state tax for 2025–2028, then lose the federal break starting in 2029

Scenario 2 — Worker in a decoupled state

Your situation	What it means for you
You earn FLSA overtime but live in a state like CA or NY that decoupled	You claim the federal deduction but still pay state income tax on the overtime premium

Scenario 3 — High earner crossing the phase-out

Your situation	What it means for you
Your overtime pushes MAGI above $150,000 single or $300,000 joint	Your deduction shrinks as income rises, and high enough income wipes it out entirely

Three Named Examples

James, a factory machinist (Ohio). James earns $28/hour and works 300 overtime hours at time-and-a-half in 2026. His premium is $14 × 300 = $4,200, well under the $12,500 cap. At a 12% marginal rate, he saves about $504 in federal tax. In 2029, with the break gone, that same overtime costs him the $504 back.

Tasha and Marcus, a married firefighter-and-teacher couple (Texas). Tasha logs heavy FLSA overtime; her qualified premium is $13,000 in 2027. Filing jointly, they use the $25,000 joint cap, so all $13,000 is deductible. Because Texas has no state income tax, the state question never arises, and their only worry is the federal sunset after 2028.

Priya, a senior IT manager (California). Priya is salaried and FLSA-exempt, so she earns no FLSA overtime — she gets no deduction even in 2026. Had she been nonexempt, California’s decoupling would still tax her overtime at the state level. Her lesson: exemption status and state conformity both control the outcome.

Mistakes to Avoid

Deducting all overtime instead of just the premium. This overstates the deduction and can trigger an IRS correction and interest.
Using the wrong divisor. Dividing double-time pay by 3 instead of 4 inflates the figure and invites an adjustment.
Filing married separately. This status generally voids the deduction, costing a couple thousands.
Forgetting the income phase-out. Crossing $150,000/$300,000 MAGI quietly shrinks or erases the benefit.
Assuming your state conforms. In a decoupled state, you still owe state tax on the overtime premium.
Counting on the break past 2028. Budgeting around a deduction that may sunset can leave a 2029 shortfall.
Tossing your pay records. Without stubs or statements, you cannot substantiate the deduction if the IRS asks.
Claiming non-FLSA overtime. Union or company-policy extra pay that the FLSA does not require is not deductible.

Do’s and Don’ts

Do isolate the FLSA premium, because only that slice is deductible.
Do keep every pay stub and year-end statement, because you may have to prove the number.
Do file jointly if married, because separate filing usually kills the deduction.
Do check your state’s conformity, because state tax can still apply.
Do claim the break in 2027 and 2028, because the window closes after that.
Don’t assume “no tax on overtime” means tax-free pay, because only the premium is deductible.
Don’t ignore your MAGI, because the phase-out can shrink the benefit.
Don’t wait past April 15 to file, because penalties add up.
Don’t count on an extension, because none is law as of June 2026.
Don’t guess the math, because the wrong divisor produces the wrong deduction.

Pros and Cons

Pro — Real tax savings now, because eligible workers cut taxable income by up to $12,500/$25,000 for 2025–2028.
Pro — No itemizing required, because the deduction is above the line and pairs with the standard deduction.
Pro — Broad reach, because it targets hourly and shift workers across many industries.
Pro — Simple math, because dividing a time-and-a-half total by 3 isolates the premium.
Pro — Rewards extra effort, because it shields the very “premium” earned for long hours.
Con — Temporary, because it sunsets after 2028 and may not return.
Con — Premium only, because most of an overtime check stays taxable.
Con — Phase-out, because higher earners lose part or all of it.
Con — State gaps, because decoupled states still tax the overtime.
Con — Status traps, because married-filing-separately and missing SSNs disqualify filers.

What to Do Next

Gather your pay records for the tax year — stubs and year-end statements that show overtime.
Compute your qualified premium using the right divisor (÷3 for time-and-a-half, ÷4 for double time).
Confirm you qualify — valid SSN, not married filing separately, MAGI under the phase-out.
Check your state’s conformity with your state department of revenue.
Claim it on Schedule 1-A with your Form 1040 by April 15 of the filing year. (Also see our No Tax on Tips guide if you earn tips.)
Plan for 2029 by setting aside the tax you would otherwise owe once the break ends.
Call a professional if you are near the phase-out, live in a decoupled state, or have mixed FLSA/non-FLSA overtime. A CPA or tax attorney can model the trade-offs; expect a fee, but it can save more than it costs.

This article is educational and is not a substitute for advice from a licensed tax professional about your specific situation.

Frequently Asked Questions

When does no tax on overtime end? After December 31, 2028. The deduction applies only to tax years 2025 through 2028. Overtime earned in 2029 or later is fully taxable again unless Congress passes a new law to extend it.

Will no tax on overtime be extended past 2028? Unknown. As of June 2026, no law extends it, and the IRS still lists 2028 as the final year. Plan for it to end on schedule and treat any extension as a bonus.

Is all my overtime pay tax-free? No. Only the FLSA “premium” — the extra half in time-and-a-half — is deductible. Your regular hourly wage portion stays taxable, even on overtime hours.

How much can I deduct? Up to $12,500 ($25,000 for joint filers) per year for tax years 2025–2028. The amount shrinks once your MAGI tops $150,000 ($300,000 joint).

Do I have to itemize to claim it? No. It is an above-the-line deduction available to both itemizers and non-itemizers, so you keep your standard deduction and still claim it.

What form do I use? Schedule 1-A, attached to your Form 1040. The IRS created this schedule for the new One Big Beautiful Bill deductions for the 2025 filing season and beyond.

Does my state tax my overtime? It depends. Many states conform to the federal rule, but several — including CA, NY, IL, MA, and CT — have decoupled and still tax the overtime premium at the state level.

Can married couples filing separately claim it? No. Married-filing-separately filers generally cannot claim the deduction. File jointly to keep the $25,000 cap and the benefit.

What counts as qualified overtime? FLSA-required overtime premium pay reported on a W-2, 1099, or similar statement. Union or company-policy overtime that the FLSA does not require does not qualify.

How do I calculate the deductible amount? Divide your overtime total by 3 if paid time-and-a-half, or by 4 if paid double time, to isolate the premium — exactly the method in the IRS examples.

Does the sunset affect my right to overtime pay? No. The FLSA still requires time-and-a-half for hours over 40. Only the income tax deduction ends after 2028; your wage protection stays.

What happens to my taxes in 2029? Your overtime tax goes up. With the deduction gone, the premium portion is taxed again, so the same overtime produces a higher federal tax bill than in 2025–2028.

Word count: approximately 3,650 words. This article reflects federal rules and general state rules as of June 2026 and covers tax years 2025–2028. Tax law changes — confirm current figures with the IRS or a licensed professional before you file.

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