New Federal Overtime Deduction: What Changes, What Doesn’t, and What to Do Next

If you’re starting to hear questions about “no tax on overtime,” you’re not alone. Recent federal legislation introduced an above-the-line tax deduction for certain qualified overtime amounts for 2025–2028. Importantly, this does not change overtime pay rules under the FLSA or applicable state law, it’s a tax filing benefit that may be available to eligible individuals.

What’s driving most of the confusion is that the deduction generally relates to the premium portion of overtime pay, not overtime wages as a whole. Employees still receive the full overtime rate, and other taxes may continue to apply under normal rules.

Click on the link below to help you get ahead of it, including an explanation, a quick example, and a practical checklist for payroll tracking and employee communications.

New Federal Overtime Deduction: What Changes, What Doesn’t, and What to Do Next