Alan West, an hourly worker at Tom Pitzer Trucking, was thrilled to learn his overtime pay might not be taxed.
"No tax on overtime — a lot more money in my pocket," West said.
But as tax filing season continues, overtime workers across the country are discovering the tax break, branded as "no tax on overtime," isn’t exactly what it seems.
"They just kind of believed they were going to get all this overtime and get it tax-free," said Jenny Pitzer, bookkeeper of the family-owned trucking firm.
Watch as a trucking company bookkeeper cuts through the overtime confusion:
"Half" portion of "time-and-a-half"
The confusion stems from how the deduction is structured.
The tax break does not apply to the full overtime paycheck, only to the "premium portion," which is the difference between a worker's regular hourly rate and their overtime rate.
2026 TAX CHANGES
For example, if a worker's regular pay is $20 per hour and their overtime rate is $30 per hour, the tax break applies only to that extra $10 — not the full $30. The IRS describes this as the "half portion" of "time-and-a-half."
"We see confusion any time there's a new tax law change," said Mark Steber, chief tax officer with Jackson Hewitt. "There's also a lot of bad information, misinformation, fake information out there socializing."
No tax on overtime explained
The income tax deduction dubbed "no tax on overtime" was established under the One Big Beautiful Bill Act.
RELATED STORY | IRS change means many taxpayers must wait weeks for refunds
The bill did not eliminate all taxes on overtime. It created a temporary tax deduction for only the premium portion of overtime pay under the Fair Labor Standards Act (FLSA).
The maximum annual deduction is $12,500 or $25,000 for joint filers.
The deduction phases out for taxpayers with modified adjusted gross income over $150,000 or $300,000 for joint filers.
The deduction is for tax years 2025 through 2028. Overtime pay also remains subject to payroll taxes and potentially state and local taxes.
In a transition period
The IRS has noted that tax year 2025 is a transition year.
"This is not a year where they're giving real hard guidance on how it's supposed to be reported on W-2s," said Karla Dennis, CEO and founder of tax strategy firm KDA, Inc. "They're looking at the honor system for individuals that just get paid as independents. And they're looking at employers to just try to figure it out, do the best you can."
According to law firm Taft, the IRS will not penalize employers who do not separately report qualified overtime compensation. For the 2026 tax year, employers should expect guidance, updated forms and instructions from the government.
RELATED STORY | What President Trump’s spending and tax bill means for tipped workers
Unless a company provides employees with information about their eligible overtime earnings, individual workers are tasked with figuring out how much of their earnings are eligible for the tax break.
For those who are eligible, Steber said now is the time to act.
"You certainly don't want to be one of those people at the last minute finding out you're sitting on a nice big $10,000, $20,000 deduction, then scrambling to find that data," Steber said.
West said he was disappointed by the limitations but is taking it in stride.
"It wasn't as exciting as I thought it would be, but it's still something," West said.
Workers who earned overtime last year should calculate that amount now to make sure they are taking full advantage of any deduction before the filing deadline, so you don’t waste your money.
______________________________
This story was reported on-air by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy.
____________________________________________
"Don't Waste Your Money" is a registered trademark of Scripps Media, Inc. ("Scripps").
Follow John:
- Facebook: John Matarese Money
- Instagram: @johnmataresemoney
- X/Twitter: @JohnMatarese
For more consumer news and money saving advice, go to www.dontwasteyourmoney.com
