President Trump made a lot of attention-grabbing promises during his campaign for a second term, and in his five months since retaking office, he’s met with varying degrees of success in enacting them. Ending taxes on Social Security benefits, for example, appears no nearer than it was on Trump’s first day in office.
But he’s made considerable headway with some of his other agenda items, including ending taxes on overtime pay. We could see this enacted yet this year, but there are still some important details to be ironed out.
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The “One, Big, Beautiful Bill” could end taxes on overtime as soon as this year
House Republicans recently drafted the “One, Big, Beautiful Bill” that incorporates several of President Trump’s key campaign promises, like an end to taxes on tips and overtime pay. It would create an above-the-line deduction for these items, so you wouldn’t owe any income taxes on them.
The House version of the bill clarifies that the tax deduction for overtime pay would apply only to overtime compensation that is paid to an individual in excess of the regular rate they receive for their work. This deduction wouldn’t be available to highly compensated employees (HCEs) and those without a work-eligible Social Security number.
The bill narrowly passed the House, and lawmakers initially hoped it would make it to the president’s desk by July 4, 2025. But the Senate is determined to make its mark on the legislation as well, and at least some senators, like Ron Johnson (R-WI), feel the July 4 deadline isn’t realistic.
The Senate is already making changes
The Senate’s version of the “One, Big, Beautiful Bill” isn’t finalized yet, but we’ve already had a peek at some of the changes it hopes to make. While the general idea of no taxes on overtime pay remains in the latest version of the bill, the Senate has added one important restriction.
The tax deduction for overtime pay would be limited to $12,500 per person or $25,000 for married couples filing a joint return. While this should be adequate for most people, it may be disappointing if you earn a lot of money from overtime. The House version of the bill didn’t have any restrictions on the overtime tax deduction.
There are also income phaseouts that reduce the deduction by $100 for every $1,000 your modified adjusted gross income (MAGI) exceeds $150,000 for a single adult or $300,000 for a married couple. Individuals with MAGIs of $275,000 or more and married couples with MAGIs of $550,000 or more wouldn’t be eligible to claim the deduction.
It’s not a done deal yet
Senate Republicans can only afford to lose three Republican votes if they want the bill to pass, and right now, there are several who are voicing concerns about the bill in its current state. This means that it likely won’t be passed in the next couple of weeks at least. There isn’t a vote scheduled currently.
If it does pass, the overtime tax deduction will take effect for the 2025 tax year, according to the current bill. However, it would only remain in place through the 2028 tax year. After that, it would be up to lawmakers to decide whether to continue the deduction or not.
