Trump’s ‘no tax on overtime’ deduction is a ‘home run,’ Treasury says

Many Americans are seeing bigger tax refunds this season due to President Donald Trump’s 2025 legislation, which includes the new “no tax on overtime” deduction.

This season, that tax break has seen a surge of popularity, which could impact its future, experts say.

While the provision doesn’t eliminate taxes on overtime pay, it allows certain workers to deduct a portion of eligible compensation — up to $12,500 for single filers or $25,000 for married couples filing jointly per year — from 2025 through 2028.

Almost 50% of the tax returns filed this season have included one of Trump’s “signature campaign policies,” Treasury Secretary Scott Bessent said Sunday during a “Fox and Friends” interview.

These returns include Trump’s deductions for tip income, overtime earnings, seniors and auto loan interest, which are reported on the new Schedule 1-A for individual returns.

“The home run has been no tax on overtime,” which filers have claimed on 25% of returns received by the IRS, Bessent said.

That amounts to nearly 20 million overtime deduction claims, out of roughly 79 million returns received, as of March 20, according to the IRS and Treasury.

“I think everybody here would agree with me, that that’s the American way,” Bessent said about the overtime deduction on Monday during a Long Island business roundtable. “Work harder and keep more of your money.”  

The overtime deduction applies to compensation covered under the Fair Labor Standards Act, or FLSA. This law says non-exempt employees must receive at least 1.5 times their normal pay rate once they exceed 40 hours per week. This definition excludes some workers covered by state or labor contract mandates. 

In 2023, about 98 million employed workers were eligible for overtime under the FLSA, according to a 2024 analysis from The Budget Lab at Yale. But only 8% of hourly workers and 4% of salaried workers have FLSA-qualified overtime on a regular basis.  

Typically, overtime pay is most common in sectors such as manufacturing, health care, transportation, and public safety, according to a Feb. 10 report from the Cato Institute, a libertarian think tank. 

Mandatory employer reporting should improve clarity for 2026 returns since companies will have to separate overtime on tax forms, such as Forms W-2, 1099-NEC or 1099-MISC, he said.

However, starting in January 2026, employee paycheck withholdings should reflect the tips and overtime deductions, which means workers will see the benefit each pay period rather than via a lump sum next tax season.

“That may change how taxpayers experience this benefit,” Andrew Lautz, director of tax policy for the Bipartisan Policy Center, a nonprofit think tank, told CNBC.

The overtime deduction is scheduled to expire after 2028, and despite initial popularity, it’s difficult to predict whether Congress will extend the tax break beyond that date.

It’s hard to project taxpayer behavior for specific types of income, Alex Muresianu, a senior policy analyst at the Tax Foundation, told CNBC.

If the overtime deduction is “dramatically more expensive than projected, the ask to extend or make it permanent is a lot more difficult,” he said.

Meanwhile, there has been bipartisan interest in expanding the overtime deduction to all workers since the current law only includes compensation covered under the FLSA.

And it’s possible that political coalitions could develop to push for other expansions, Lautz from the Bipartisan Policy Center said.