The brand new 2025 Trump tax legislation contains provisions for “No Tax on Ideas” and “No Tax on Time beyond regulation.” I lined “No Tax on Ideas” in a unique publish. Let’s look into “No Tax on Time beyond regulation” now. Should you earn each suggestions and additional time pay, you may profit from each!
Non-Exempt W-2 Workers
Normally, solely W-2 staff are entitled to additional time pay. Unbiased contractors paid by a 1099 don’t qualify for additional time. Nor do self-employed enterprise house owners.
Amongst W-2 staff, for essentially the most half, solely hourly (“non-exempt”) staff are entitled to additional time pay. Most salaried (“exempt”) staff don’t obtain additional time pay, whatever the variety of hours they work in every week.
Some salaried staff aren’t paid excessive sufficient to qualify as exempt staff. They’re nonetheless categorized as non-exempt and are entitled to additional time pay.
Exempt and non-exempt consult with the necessities mandated by the Honest Labor Requirements Act of 1938. Being exempt signifies that the employer isn’t required to observe these necessities in its employment relationship with you. Your employer will let you know whether or not you’re exempt or non-exempt if you happen to’re undecided.
It’s unlikely that an employer is prepared to re-classify a at the moment salaried worker from exempt to non-exempt to 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 Honest Labor Requirements Act. An employer desires to seek out each cause to make an worker exempt from these necessities.
It nonetheless doesn’t depend if you happen to’re an exempt worker and your employer voluntarily pays you additional for additional work. The brand new tax legislation limits “No Tax on Time beyond regulation” to additional time compensation “required beneath part 7 of the Honest Labor Requirements Act of 1938.” Voluntary additional pay doesn’t depend as a result of exempt staff aren’t required to be paid for additional time.
Not What You Assume
The Honest Labor Requirements Act requires that additional time have to be paid at the very least 1-1/2 instances 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 fee is $30/hour and also you’re paid $45/hour for additional time. You obtain $450 in gross additional time pay whenever you work 10 additional time hours in every week. You’d assume that “No Tax on Time beyond regulation” means you don’t pay tax on that $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 fee. The “No Tax” half applies to $150 out of the $450 gross additional time pay for these 10 hours. You continue to pay taxes as typical on $300 earned at your common $30/hour fee for the additional time hours.
Because of this, in case your additional time hours are paid time-and-a-half, you’ll haven’t any tax on just one/3 of your gross additional time pay. Should you’re paid double time, you’ll haven’t any tax on 1/2 of the gross additional time pay.
Non permanent Window
As is the case with a number of different provisions within the 2025 Trump tax legislation 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 additional time pay in another way, however the adjustments gained’t begin till 2026. You gained’t see any change in your paychecks in 2025 until you alter your tax withholding along with your employer.
Tax Deduction
The IRS will add a spot on the W-2 type for employers to interrupt out the additional time pay premium. Till then, your employer can report back to you exterior the W-2. You should have a brand new tax deduction to your additional time pay premium whenever you file your tax return. You’ll get the next tax refund if the tax withholding was too excessive.
This deduction is obtainable whether or not you’re taking the usual deduction or itemize your deductions. Nonetheless, it doesn’t decrease your AGI. 100% of your additional time 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 Baby Tax Credit score.
Greenback Cap
You is probably not allowed to deduct all of your additional time pay premiums. There’s a $12,500 cap ($25,000 for married submitting collectively). You don’t get this tax deduction if you happen to’re married submitting individually.
As a result of most individuals are paid time-and-a-half for additional time, a $12,500 cap for the premium portion of the additional time pay interprets into $25,000 on the common hourly fee for the additional time hours. In case your common hourly fee is $25/hour, it means you may work 1,000 additional time hours in a yr earlier than you hit the cap. That’s like working 60 hours per week each week of the yr.
Should you’re married submitting collectively, and solely one in every of you has additional time pay, your cap is twice as excessive as that for a single particular person.
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 gained’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 Ideas
“No Tax on Time beyond regulation” and “No Tax on Ideas” are impartial of one another. You qualify for each if you happen to obtain each additional time pay and suggestions (or one particular person in a married couple will get additional time and the opposite will get suggestions). Should you’re 65 or older, you additionally qualify for the Senior Deduction.
Calculator
I made a calculator that will help you estimate your federal revenue tax earlier than and after “No Tax on Time beyond regulation” and “No Tax on Ideas.” Use the calculator to see how a lot you’ll profit. Depart the guidelines area at 0 if you happen to don’t obtain suggestions.
Should you’re married submitting collectively, please embody revenue from each of you.
The calculator estimates taxes utilizing fundamental assumptions. It assumes the additional time hours are paid time-and-a-half. Your taxes could also be totally different when you have a extra advanced situation.
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The brief takeaway from “No Tax on Time beyond regulation” is that it isn’t what you assume. “No Tax on Time beyond regulation” means no tax on 1/3 of the gross additional time pay for most individuals.
You’ll discover extra deep dives on latest adjustments from the 2025 Trump tax legislation within the full OBBBA sequence.
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