The recently passed One Big Beautiful Bill Act (OBBBA) includes a provision that has been commonly referred to as “no tax on overtime.” This provision creates a deduction for qualified overtime compensation for tax years 2025 through 2028. That means that it applies, retroactively, to overtime earned starting Jan. 1, 2025. While the university cannot provide tax advice, the following points are meant to explain this provision.
Who does “no tax on overtime” affect?
Hourly workers who are paid overtime, or “time and a half”, when working over 40 hours per week may be affected by this provision. Salaried workers, who do not see additional wages in their paychecks when working over 40 hours, will not be affected.
How will this affect my paycheck?
At this time, the provision will not directly affect your paycheck. Taxes will continue to be withheld on your overtime wages the same as they have been in the past. If you qualify for the deduction, you will take it on the tax return that you prepare after receiving your W-2.
Is all my overtime pay deductible?
No. The qualified overtime compensation that is deductible is the “half” part of “time and a half”. As an example, if your hourly wage is $20 per hour and you work one hour of overtime, you will be paid $30 for that hour. The qualified overtime compensation portion of that overtime earnings is $10 ($30 less $20). That $10 is the portion that is deductible.
Additionally, the annual deduction is limited to $12,500 (or $25,000 for joint tax filers).
How will I know how much qualified overtime compensation I’ve received each year?
It is expected that the W-2 form will be revised to include a box showing this amount. If this is not done in time for 2025 tax reporting, an alternative report will be issued to provide this information.
In the meantime, regular university employees can estimate their qualified overtime compensation by looking at the Overtime at 1.5 column on their most recent pay stubs and dividing the number in the YTD Amount column by three. Student employees who have worked overtime can see their estimated qualified overtime compensation for the year by referring to the YTD Amount column on the Overtime FLSA Auto line of their pay stub. (There is no need to divide this amount by three.)
This material has been prepared for informational purposes only. Please consult your legal or tax advisor about the impact of these rules on your individual situation. Additional information about deductions included in the OBBA can be found on the .
Questions about payroll may be directed to payroll@kent.edu.