Fact Check: "All overtime income is now tax free"
What We Know
The claim that "all overtime income is now tax free" stems from recent legislative changes under the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. This act introduces a new above-the-line tax deduction for overtime pay, allowing eligible employees to deduct up to $12,500 in overtime income ($25,000 for joint filers) from their federal taxable income from 2025 through 2028 (source-3, source-4). However, it is crucial to note that this deduction does not equate to a complete tax exemption.
The deduction applies only to overtime pay that exceeds an employee's normal wage rate and is subject to the provisions of the Fair Labor Standards Act (FLSA). Furthermore, while the deductible portion of overtime pay is not subject to federal income tax, it remains subject to payroll taxes such as Social Security and Medicare (source-4, source-5).
Analysis
The assertion that all overtime income is tax-free is misleading. The OBBBA provides a temporary deduction rather than a full exemption from taxes. According to the law, only the portion of overtime pay that qualifies under specific guidelines can be deducted from taxable income, and this deduction phases out for higher earners (source-4, source-6).
Moreover, the deduction is limited to a specific amount and is only applicable to overtime pay defined by the FLSA, meaning not all overtime pay qualifies (source-3, source-5).
In evaluating the reliability of sources, the information from Kiplinger and the National Association of Home Builders (NAHB) is credible, as they provide detailed explanations of the law and its implications. However, the claim itself oversimplifies the legislative changes and does not accurately represent the nuances of the new tax deduction.
Conclusion
Verdict: False. The claim that "all overtime income is now tax free" is inaccurate. While the OBBBA introduces a deduction for a portion of overtime pay, it does not eliminate taxes on all overtime income. Employees will still be subject to payroll taxes, and only specific amounts of overtime pay can be deducted from federal taxable income, not exempted entirely.
Sources
- H.R.561 - 119th Congress (2025-2026): Overtime Pay Tax ...
- S.1046 - No Tax On Overtime Act of 2025
- What to Know about “No Tax on Overtime” and “ ...
- Tax on Overtime Pay in 2025: What's Happening? | Kiplinger
- The 2025 Tax Bill: No Taxes on Overtime, Simplified
- No Tax On Overtime Explained - Forbes
- Overtime Tax Exemption 2025 Updates
- It's Official—No Tax on Tips, No Tax on Overtime Through ...