A New Temporary Break for Overtime Workers
If you’ve ever worked extra hours to get ahead, there’s a brand-new reason to smile. Beginning in 2025, the Big Beautiful Tax Bill introduces a temporary tax break that makes overtime pay tax-free—up to a point.
This new rule runs from 2025 through 2028 and allows qualifying taxpayers to take a deduction of up to $12,500 ($25,000 for Married Filing Jointly) for overtime pay. It’s designed to reward hard-working Americans who put in extra time, giving them a little more take-home pay each year.
How It Works
The overtime pay must meet the requirements of Section 7 of the Fair Labor Standards Act of 1938, meaning it’s pay received for hours worked in excess of the standard workweek.
This deduction is taken “above the line,” which means it reduces your adjusted gross income (AGI)—a major advantage because it can help you qualify for other tax credits and deductions that phase out at higher income levels.
However, this benefit phases out once your income reaches:
- $150,000 for single filers, and
- $300,000 for married couples filing jointly.
If you’re under those limits, this could be a great opportunity to plan ahead and potentially keep thousands of dollars tax-free.
Why It Matters
Tax policy changes like this don’t come around often—and this one is temporary. That means there’s a limited window (2025–2028) to take advantage of it.
For individuals, this means more take-home pay. For business owners, it’s important to understand how this rule affects your payroll and your employees’ taxable wages. Strategic planning now can help both you and your team maximize this benefit.
Plan Ahead Now
Even though this provision doesn’t start until 2025, now is the time to plan ahead. Consider how your overtime hours—or your employees’ hours—could impact your taxable income next year.
At Gundersons CFO & Bookkeeping, we help small business owners and families understand how new laws like this one can affect their cash flow, payroll, and taxes. Staying ahead of tax changes is one of the best ways to protect your income and grow your wealth.
Watch the YouTube Short
I cover this topic in my latest YouTube video — Big Beautiful Tax Bill Series, Part 14: No Tax on Overtime Pay.
🎥 Watch it here: https://youtube.com/shorts/ywv-MHOJcic?si=6hosCL4A0BalcHHc
Then, test your money knowledge with our Financial Literacy Quiz to see how tax-smart you really are!
👉 https://go.gundersonsbookkeeping.com/financialliteracyquiz
Final Thoughts
From 2025 to 2028, overtime pay could put more money back into your pocket. Whether you’re an employee or a business owner, understanding how to take advantage of this new deduction can make a big difference in your financial picture.
If you’re ready to build a proactive tax strategy, book a Discovery Call today and let’s talk about how we can help you save more, protect your assets, and build your legacy.