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“No tax on overtime, how’s that?”
That’s President Donald Trump at a White House lunch for first responders on Oct. 15. He told the crowd the tax cuts he passed were “giving countless firefighters, police officers and first responders no tax on overtime,” according to a Roll Call Factba.se transcript (1).
I’ve been a CPA since 1981, and the deduction is real. But “no tax” isn’t what it sounds like.
Here’s what the IRS actually says. If you get qualified overtime pay, “you may deduct the pay that exceeds your regular rate of pay” (2). The deduction tops out at $12,500, or $25,000 on a joint return (2).
In plain English: you can only deduct the extra “half” in time-and-a-half, not your whole overtime check (3). And the overtime has to be the kind federal law requires your employer to pay (3).
There’s one more catch the speeches skip. Overtime pay is still hit with Social Security and Medicare taxes, and with most state and local income taxes (4).
So whether you’re 58 and still picking up extra shifts, or your grown kids are cops, firefighters or nurses, here are 5 things to know before you count on “no tax.”
1. Only the “half” is deductible
Say you earn $30 an hour. Overtime at time-and-a-half pays $45 an hour. Of that $45, only the extra $15 counts as the deductible premium.
Work 200 overtime hours this year and you’ll earn $9,000 in overtime pay. But your deduction is just $3,000 — the $15 premium times 200 hours.
For 2025 returns, the University of Illinois Tax School describes a shortcut for people whose paperwork doesn’t show a separate figure: total up your overtime pay and divide by three to find the premium (3).
2. Payroll taxes don’t go away
Here’s the part the slogan leaves out. The deduction is for federal income tax. It does nothing about Social Security and Medicare taxes (4).
Back to our example. Your employee share of those taxes is 7.65%, so your $9,000 of overtime still costs you about $689 in payroll taxes.
Now compare that with what the deduction saves. In the 12% bracket, a $3,000 deduction saves $360 in federal income tax. In the 22% bracket, it saves $660.
Either way, in this example, you’d still pay more in payroll taxes on that overtime than the deduction saves you.
That’s not nothing — $360 or $660 is real money. But it’s a long way from “no tax.”
If you were counting on “no tax” and wound up with an IRS bill you can’t pay, don’t let it sit.
Ignoring a $5,000 IRS tax bill, for example, can quickly snowball into a $10,000 nightmare with penalties, interest, and asset liens.
You don’t have to face the IRS alone. If you’ve got an issue, you can compare your top tax relief options here to find expert help.
Quick gut-check — if your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and writing about money since before the internet existed. Sign up for the free Money Talks Newsletter and get expert advice that’s been tested by time.
3. Not all overtime qualifies
The deduction covers only overtime required under section 7 of the Fair Labor Standards Act, the federal wage-and-hour law (3).
That matters more than it sounds. Overtime required by state law but not by the federal law doesn’t count (3). And if your employer pays double time on holidays, only the half-time portion qualifies (3).
Overtime required by a union contract but not by federal law doesn’t qualify either (3). Ask your payroll office which of your overtime meets the federal definition.
4. Income limits and fine print
The deduction starts to shrink once your modified adjusted gross income passes $150,000, or $300,000 on a joint return (2).
You need a valid Social Security number, and if you’re married, you must file jointly (2). The good news: you can take it whether you itemize or claim the standard deduction (2).
It’s also temporary. The deduction is in effect for tax years 2025 through 2028 (3).
5. Check your W-2 in January
For 2026, employers report qualified overtime in Box 12 of your W-2 with code TT, according to the IRS’s 2026 W-2 instructions (5). For 2025, employers didn’t have to report it separately, though some, like Iowa’s state payroll office, used Box 14 (4).
When your W-2 shows up, look for that code. It’s the number your deduction is built on, and if it looks wrong, get it fixed before you file.
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My honest take
I’ll give the president this: the overtime deduction is a real tax cut, and for a cop or a nurse working a lot of extra hours, a few hundred dollars matters.
But “no tax on overtime” is a slogan, not a tax rule. You’ll still pay Social Security and Medicare taxes on your overtime pay, and only part of your overtime pay comes off your taxable income.
Know the real number before you spend it. A tax break you understand is worth more than one you were promised.
Sources: 1. Roll Call Factba.se; 2. IRS; 3. University of Illinois Tax School; 4. Iowa Department of Administrative Services; 5. IRS
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