Millions of American workers could soon see bigger paychecks thanks to a major tax reform breakthrough. On July 1, 2025, the U.S. Senate passed the One Big Beautiful Bill Act, which includes a groundbreaking provision to eliminate federal taxes on overtime pay. This follows the House’s approval of the same bill in May, setting the stage for final passage. If signed into law, the change could put hundreds—or even thousands—of dollars back into workers’ pockets.
Key Details of the “No Tax on Overtime” Plan
- Who Benefits? Hourly workers who log overtime (typically over 40 hours per week).
- Tax Savings: Workers could deduct up to $12,500 in overtime pay from federal taxes ($25,000 for married couples).
- Income Limits: The benefit phases out for individuals earning over $150,000 or couples above $300,000.
- Timeline: If passed, the rule would apply retroactively to January 1, 2025, lasting through 2028.
- What’s Not Included? Payroll taxes (Social Security/Medicare) and state taxes would still apply.
See also- Did the Big Beautiful Bill Pass
How Much Could You Save?
The White House estimates eligible workers could save up to $2,000 per year on federal taxes. However, analysts note that the biggest gains will likely go to middle-income earners, while lower-wage workers (who often owe little federal tax) may see smaller benefits.
What’s Next?
The bill now heads back to the House for a final vote before reaching the President’s desk. If approved, employers may need to adjust payroll systems to track overtime wages separately for tax reporting. Workers should watch for updates to ensure they claim the deduction correctly when filing 2025 taxes.
Why It Matters
Supporters say the move rewards hard work and boosts take-home pay for those who need it most. Critics question whether it will meaningfully spur economic growth. Either way, it’s a major shift in tax policy—and one that could impact paychecks soon.
Stay tuned for updates as this bill moves toward becoming law.