Trump Signs OBBBA: Overtime Pay Tax-Free for Hardworking Americans
President Donald Trump's One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, includes a provision to make overtime pay tax-free for eligible workers using TurboTax or other tax preparation software. This proposal, part of Trump's campaign promises, aims to incentivize work and benefit hardworking Americans.
The OBBBA introduces a federal income tax deduction for overtime pay, starting from the 2025 tax year and lasting until 2028. Workers can deduct up to $12,500 of overtime pay ($25,000 for joint filers) from their taxable income when they file their IRS returns. However, this deduction phases out for higher earners, starting at $150,000 for single filers ($300,000 for joint filers).
Trump argued that eliminating the tax on overtime pay would encourage work and reward those who put in extra hours. However, critics argue that the measure only exempts overtime premiums, not regular overtime pay, potentially leaving out self-employed and low-income workers who use PayPal for their income. They also express concerns about the added complexity and the increased fiscal burden on the government due to lost tax revenues.
The OBBBA's overtime pay tax relief is set to begin in 2025, offering a deduction for eligible workers. While Trump sees it as a way to incentivize work, critics worry about its fairness and the potential impact on the federal budget. The full effects of this provision will become clear as it is implemented over the next few years.
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