It passed inside a package, not as its own bill
Bills titled some variation of “No Tax on Overtime Act” have been introduced in Congress, and searching for one of those is the usual reason people conclude the idea never became law. The enacted provision is not one of them. It is §70202 of P.L. 119-21, one section of the reconciliation package signed July 4, 2025, and the operative law now lives at 26 U.S.C. §225 in the Internal Revenue Code. If you want to read the rule itself rather than coverage of it, that section is where to look — it is about a page long.
What passed is narrower than what was promised
The campaign phrase was “no tax on overtime”. The statute delivers a deduction with four limits stacked on it, and each one matters:
- Premium only. Just the 0.5x above your regular rate that section 7 of the FLSA requires — not your overtime check, and not overtime paid only because of a contract, union agreement or state daily-overtime rule.
- Capped. $12,500 per return ($25,000 joint), no matter how much overtime you worked.
- Phased out. Reduced by $100 for each $1,000 of modified AGI over $150,000 ($300,000 joint).
- Temporary. Tax years 2025–2028 only.
It is also a deduction rather than a credit, so it is worth your marginal rate, not its face value. The worked examples put real numbers on that gap.
Payroll taxes and state taxes did not change
Nothing in §70202 touched Social Security or Medicare — those come out of your full overtime as before. And a federal deduction does not bind the states. Unless your state passes its own conforming law, your state income tax is still calculated on all of your overtime. Our state overtime pages cover which states require daily overtime and what the pay rules are; for state tax conformity, check your state revenue department.
So why does my check look the same?
Because withholding did not change automatically, and the IRS has confirmed employers may not reduce it on their own initiative. If you would rather have the benefit during the year than as a refund, the route is a fresh Form W-4 — the 2026 version added step 4(b) to account for this deduction. Otherwise it shows up as a smaller tax bill or larger refund at filing. How to claim it walks through the filing side.
Find out what it is worth to you
Enter your rate, overtime hours and filing status in the no tax on overtime calculator to see the deduction and the tax it saves. Then check who qualifies — the FLSA-eligibility test rules out more people than most coverage of the law admits.