Overtime Calculator,
with 2025 tax exemption savings.

Overtime tax guide

The 2025 No Tax on Overtime Law: what it means for your paycheck

What is the 2025 Overtime Tax Exemption?

The Tax Cuts and Jobs Act extension and social provisions included in H.R. 1 — informally called the "One Big Beautiful Bill" — signed into law in 2025 created a landmark new deduction: qualifying employees can now exclude overtime wages from federal taxable income. This means the hours you work above 40 per week are no longer subject to federal income tax, keeping more of your hard-earned money in your pocket.

The exemption is effective for tax years 2025 through 2028. After that, Congress would need to act to extend or make it permanent.

Who qualifies for the 2025 overtime exemption?

The exemption applies to overtime pay as defined under the Fair Labor Standards Act (FLSA):

• Non-exempt hourly workers covered by the FLSA who are paid at least 1.5× their regular rate for hours above 40 per week.
• Income threshold: Workers with an adjusted gross income (AGI) at or below $150,000 (single filers) or $300,000 (married filing jointly) receive the full exemption.
• Phase-out range: The benefit gradually phases out between $150,000–$200,000 AGI for single filers ($300,000–$400,000 for MFJ). Above these ceilings, the exemption is fully eliminated.
• Salaried employees who are FLSA non-exempt and receive overtime pay also qualify.

The exemption does not apply to:

• FLSA-exempt employees (executives, administrators, professionals earning above the FLSA salary threshold).
• Workers whose employers do not pay the statutory 1.5× overtime rate.
• Overtime-like bonuses or shift differentials that are not FLSA-defined overtime.

How the exemption affects your tax bill

Under the previous law, every dollar you earned — including overtime — was subject to federal income tax at your marginal rate. For a worker in the 22% bracket earning $10,000 in overtime annually, that meant roughly $2,200 in federal income tax on those overtime wages alone.

With the 2025 exemption, those same overtime wages are excluded from federal taxable income. The $2,200 stays in your paycheck. Multiply that by the 4 years (2025–2028) and the cumulative benefit can be significant.

Your employer should adjust withholding to reflect the exemption. If your employer's payroll system does not automatically update, you may need to file a new Form W-4 to reduce over-withholding — or you will receive the savings as a tax refund when you file your annual return.

What taxes do you still pay on overtime?

The 2025 exemption only covers federal income tax. The following taxes still apply to your overtime wages:

• Social Security tax (6.2%) on wages up to the annual wage base ($176,100 in 2025).
• Medicare tax (1.45%) on all wages (plus an additional 0.9% on wages above $200,000 for single filers or $250,000 for MFJ — the Additional Medicare Tax).
• State income taxes in most states. Some states have announced their own overtime exemptions mirroring the federal law; check your state's revenue department for current guidance.

How overtime pay is calculated (FLSA rules)

The Fair Labor Standards Act requires non-exempt employees to be paid at least 1.5 times their regular hourly rate for all hours worked over 40 in a single workweek. A "workweek" is any fixed recurring period of 168 hours (seven consecutive 24-hour periods) — it does not have to match a calendar week.

• Overtime rate: Regular rate × 1.5 (time-and-a-half).
• Double time: Some employers, industries, or union contracts pay 2× the regular rate for certain shifts (e.g., holidays, hours over 12 in a day in California). Double time is not federally required but may be required by state law or contract.
• "Regular rate of pay" includes the base hourly wage plus non-discretionary bonuses, commissions, and most shift differentials. Pure discretionary bonuses may be excluded.
• Exempt employees (salaried professionals, managers, certain computer employees above salary thresholds) are not entitled to overtime under FLSA and are not covered by the exemption.

How to maximize your take-home pay in 2025–2028

• Update your W-4: Alert your employer's HR or payroll department about the exemption. Filing a new W-4 reflecting the reduced taxable income prevents over-withholding and gives you the savings each pay period rather than waiting for a tax refund.
• Track your overtime hours carefully: For the exemption to apply at tax time, your employer should separately report overtime wages on your W-2. Keep personal records of OT hours in case of discrepancies.
• Watch your AGI: If your total annual income approaches $150,000 (single) or $300,000 (MFJ), pre-tax retirement contributions (401k, HSA, IRA) can reduce your AGI and protect more of the exemption.
• State law varies: Several states have already enacted parallel exemptions; others tax overtime at full state rates. Research your specific state.