The earlier submit coated “No Tax on Suggestions” within the new 2025 Trump tax regulation. The identical regulation additionally has a brand new “No Tax on Time beyond regulation” provision. Let’s look into it. When you earn each suggestions and time beyond regulation pay, you’ll be able to profit from each!
Non-Exempt W-2 Workers
Typically, solely W-2 workers are entitled to time beyond regulation pay. Unbiased contractors paid by a 1099 don’t qualify for time beyond regulation. Nor do self-employed enterprise house owners.
Amongst W-2 workers, for essentially the most half, solely hourly (“non-exempt”) workers are entitled to time beyond regulation pay. Most salaried (“exempt”) workers don’t obtain time beyond regulation pay, whatever the variety of hours they work in per week.
Some salaried workers aren’t paid excessive sufficient to qualify as exempt workers. They’re nonetheless labeled as non-exempt and entitled to time beyond regulation pay.
Exempt and non-exempt confer with the necessities mandated by the Truthful Labor Requirements Act of 1938. Being exempt signifies that the employer isn’t required to comply with these necessities in its employment relationship with you. Your employer will let you know whether or not you’re exempt or non-exempt in case you’re undecided.
When you’re presently a salaried exempt worker, it’s unlikely that your employer is prepared to re-classify you as non-exempt and provide the benefit of “No Tax on Time beyond regulation.” Having you as a non-exempt worker would topic the employer to many necessities from the Truthful Labor Requirements Act. An employer desires to seek out each motive to make an worker exempt from these necessities.
Not What You Assume
The Truthful Labor Requirements Act requires that time beyond regulation should be paid at the very least 1-1/2 occasions the common hourly wage (“time-and-a-half”). Some state legal guidelines and union contracts require double time in some situations. Some employers voluntarily pay double time for holidays.
Suppose your common hourly price is $30/hour and also you’re paid $45/hour for time beyond regulation. You obtain $450 in gross time beyond regulation pay whenever you work 10 time beyond regulation hours in per week. You’d assume that “No Tax on Time beyond regulation” means you don’t pay tax on the $450, however that’s not the way it works.
“No Tax on Time beyond regulation” covers solely the pay premium over and above your common hourly price. The “No Tax” half applies solely to $150 out of the $450 gross time beyond regulation pay for 10 hours. You continue to pay taxes as standard on the $300 earned at your common $30/hour price for these hours.
Consequently, in case your time beyond regulation hours are paid time-and-a-half, you’ll don’t have any tax on only one/3 of your gross time beyond regulation pay. When you’re paid double time, you’ll don’t have any tax on 1/2 of the gross time beyond regulation pay.
Non permanent Window
As is the case with a number of different provisions within the 2025 Trump tax regulation affecting particular person taxpayers, “No Tax on Time beyond regulation” is just efficient between 2025 and 2028 (inclusive). It expires on the finish of 2028.
Tax Withholding
“No Tax” refers solely to the federal revenue tax. It doesn’t change the Social Safety and Medicare taxes withheld out of your paychecks. It doesn’t cut back your state taxes.
The IRS will make adjustments to payroll tax withholding to deal with time beyond regulation pay in a different way, however the adjustments received’t begin till 2026. You received’t see any change in your paychecks in 2025 except you modify your tax withholding along with your employer.
Tax Deduction
The IRS will add a field to the W-2 kind for employers to interrupt out the time beyond regulation premium. Till then, your employer can report the time beyond regulation pay to you exterior the W-2. You’ll have a brand new tax deduction to your time beyond regulation pay premium. You’ll use it to reconcile along with your tax withholding. You’ll get a better tax refund if the tax withholding was too excessive.
This deduction is accessible whether or not you’re taking the usual deduction or itemize your deductions. Nevertheless, it doesn’t decrease your AGI. 100% of your time beyond regulation pay will nonetheless be included in your AGI. It doesn’t make it simpler so that you can qualify for different tax advantages, such because the Little one Tax Credit score.
Greenback Cap
You might not be allowed to deduct all of your time beyond regulation pay premiums. There’s a $12,500 cap ($25,000 for married submitting collectively). You don’t get this tax deduction in case you’re married submitting individually.
As a result of most individuals are paid time-and-a-half for time beyond regulation, a $12,500 cap for the premium portion of the time beyond regulation pay interprets into $25,000 on the common hourly price for the time beyond regulation hours. In case your common hourly price is $25/hour, it means you’ll be able to work 1,000 time beyond regulation hours in a 12 months earlier than you hit the cap. That’s like working 60 hours per week each week of the 12 months.
When you’re married submitting collectively, and solely certainly one of you has time beyond regulation pay, your cap is twice as excessive as that for a single individual.
Revenue Phaseout
The greenback cap drops slowly as your revenue will increase above $150,000 ($300,000 for married submitting collectively). It decreases by $100 for each $1,000 of revenue above the edge. The cap drops to zero when your revenue reaches $275,000 ($550,000 for married submitting collectively).
Most individuals received’t be affected by the revenue phaseout as a result of each the greenback cap and the phaseout threshold are set sufficiently excessive.
Each Time beyond regulation and Suggestions
“No Tax on Time beyond regulation” and “No Tax on Suggestions” are impartial of one another. You qualify for each in case you obtain each time beyond regulation pay and suggestions. When you’re 65 or older, you additionally qualify for the Senior Deduction. When you take the usual deduction and also you donate to charities, you qualify for the charity donation deduction, too.
Calculator
I made a calculator that can assist you estimate your federal revenue tax earlier than and after “No Tax on Time beyond regulation” and “No Tax on Suggestions.” Use the calculator to see how a lot you’ll profit. Go away the information area at 0 in case you don’t obtain suggestions. [Email readers: The calculator doesn’t work in emails. Please go to the website to try the calculator.]
When you’re married submitting collectively, please embody revenue from each of you.
The calculator estimates taxes utilizing primary assumptions. It assumes your time beyond regulation hours are paid time-and-a-half. Your taxes could also be totally different in case you have a extra advanced situation.
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You’ll discover extra deep dives on latest adjustments from the 2025 Trump tax regulation within the full OBBBA collection.
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