In Summary
For workers earning under ~$160,000 and putting in overtime:
- Great potential savings: thousands in tax savings annually.
- Limited timeframe: benefits apply only through 2028.
- Preparation needed: employers must update payroll records; employees must file accordingly.
Overview of the Proposal
- House and Senate have both backed it: This tax-and-spending bill (nicknamed the One Big Beautiful Bill Act) passed the House on May 22 and the Senate on July 1, with Vice President Vance breaking the tie in a 50–50 vote .
- Temporary deduction: If enacted, it would let workers deduct federal income tax on overtime pay (and tips), applied retroactively from tax year 2025 through 2028.
- Caps and eligibility:
- Deduction limited to $12,500 per filer ($25,000 for joint filers), phasing out above $150K individual / $300K joint income.
- Only those earning under ~ $160,000 in 2025 qualify.
- To claim, employers must report overtime amounts separately on W‑2s, and taxpayers need a valid SSN
Who Stands to Benefit?
- Overtime workers could save approximately $1,400–$1,750 annually, and tipped workers around $1,675, according to federal estimates.
- However, lower-income workers gain less: households earning <$33K see only ~$10–$450 in benefits on average
What’s Next
- The Senate bill now goes back to the House. Final approval is expected soon—before the July 4 deadline mentioned by GOP leaders.
- If it becomes law, payroll systems and IRS guidance would follow, and employers would be directed to start itemizing overtime on W‑2s as early as 2025 .
- The current proposal sunsets at the end of 2028 unless extended.
