One Big Beautiful Bill Act - No Tax on Overtime Provision

The "No Tax on Overtime" provision in the One Big Beautiful Bill Act (OBBBA) creates a temporary federal income tax deduction for qualified overtime earned in tax years 2025 through 2028. For this deduction, only the premium portion of overtime (i.e., the extra “half” of time-and-a-half pay) that meets the federal Fair Labor Standards Act (FLSA) definition counts as qualifying compensation. Additional communication will be sent to those regarding qualified overtime at MTU for 2025 on or before February 6, 2026.

Note: Michigan Tech University often provides overtime compensation beyond the federal standard. Because the federal definition of overtime only includes hours worked over 40 in a workweek, some overtime paid by MTU may not meet that narrower definition. Michigan Tech pays overtime under a mix of FLSA requirements, contracts, and policies that cannot be reliably separated. As a result, 2025 overtime statements cannot be issued, and employees must use their pay stubs to make their own determination.

Frequently Asked Questions about No Tax on Overtime Provision

While tax advice cannot be provided, the following information addresses common employee questions. Employees should seek professional tax advice for any income tax questions and assistance.

What is the "No Tax on Overtime" Provision?

A new federal law called the “One Big Beautiful Bill Act,” (OBBBA) signed on July 4, 2025, created a temporary federal income tax deduction for certain types of overtime pay earned by eligible hourly employees.

For more information, visit the IRS website.

When does this start?

This deduction is temporary and applies to tax years 2025, 2026, 2027, and 2028.

Who qualifies?

You may qualify if:

You are a non-exempt employee, and
You receive at least time-and-a-half overtime pay (1.5 times your regular hourly rate) for any hours worked over 40 in a week.

These criteria reflect the federal overtime rules set by the Fair Labor Standards Act (FLSA). Exempt employees (e.g. salaried professionals) under the FLSA do not receive overtime pay and are, therefore, not eligible.

Will less federal tax be taken out of my paycheck?

No. Your federal tax withholding will not change because of this law. Your overtime pay is still subject to federal and state withholding, Social Security, Medicare, etc. The benefit comes as a tax deduction you claim when you file your annual tax return.

What types of overtime count for this deduction?

Only the premium portion of overtime pay required by the FLSA qualifies, which is the extra half above the regular rate of pay for hours worked over 40 in a work week.

Important: Some Michigan Technological University contract rules are broader than the FLSA rules. Not all overtime that MTU pays will qualify for this deduction.

Does all of my overtime pay count for the deduction?

No. Even when the overtime hours qualify under FLSA, only part of the overtime pay can be used.

Time-and-a-half overtime pay includes:

1.0 x your regular hourly rate (your normal pay), plus
0.5 x your hourly rate (the overtime premium).

Only the overtime premium, the “half”, can be used for this deduction. The regular part of your pay, the “1.0”, does not qualify.

As mentioned above, not all overtime that MTU pays will qualify for this deduction.

How do I claim this deduction?

You can claim the deduction when you file your federal tax return. If you have questions about claiming the deduction, speak with a tax professional.

Is there a limit to how much I can deduct?

Yes. For tax years 2025 through 2028, eligible workers may deduct up to:

$12,500 of qualified overtime pay for single filers.
$25,000 of qualified overtime pay for married couples filing a joint return.

How and when will I know how much of my overtime qualifies?

Additional communication will be sent to those that have qualified overtime for 2025 on or before January 31, 2026.

For calendar year 2026, the info will be on your W-2 in Box 14.

Who can I contact if I have questions?

Please email Payroll@mtu.edu with questions. Visit the IRS website for official guidance. You are encouraged to seek professional tax advice for an income tax questions and for filing assistance.