How will no tax on overtime work? Here’s what Trump’s BBB means for your paycheck, taxes
President Donald Trump’s signature “one big beautiful bill” promises to let workers keep more of what they earn by making tips and overtime wages tax-free.
In states like New Jersey, Pennsylvania, and Delaware — where hundreds of thousands of workers rely on overtime and tips to make ends meet — that sounds like a big deal.
But will it mean bigger paychecks every week? Or just a larger tax refund later? Here’s what you need to know.
How does no tax on overtime work?
Under the new law, workers can deduct up to $12,500 in overtime pay and $25,000 in reported tips from their taxable income on federal tax returns.
But this won’t give you an immediate bump in take-home pay. Deductions apply during tax-return season.
Employers will still withhold federal taxes from your overtime and tips during the year. But when you file your 2025 return early next year, the deduction could shrink your tax bill or increase your refund.
And the benefit is temporary. The deductions expire at the end of 2028 unless Congress extends them.
Will my weekly paycheck go up under BBB?
If you’re banking on tax-free overtime to boost your paycheck, you’re out of luck. Trump’s “big beautiful bill” doesn’t change what you’re paid; it changes what you’re taxed.
That happens at tax time, not on payday. Employers will keep withholding taxes as usual, and it’s up to you to apply the deduction — if you qualify — when you file.
So your weekly paycheck won’t grow, but your tax refund could.
The tax break packs the biggest punch for middle- and high-income workers who rack up overtime or bring in substantial tips.
For example, a police officer earning a $75,000 base salary and another $15,000 from overtime would pay federal income taxes on only $2,500 of those extra earnings.
A high-end restaurant sommelier with an $80,000 salary and generous tips could hit the cap on tip deductions and still save thousands on their tax bill.
Earning more than the thresholds — $12,500 in overtime and $25,000 in tips — doesn’t wipe out the benefit. It just means anything above those limits is fully taxed.
Midrange earners stand to see meaningful savings too.
A warehouse supervisor earning $60,000 with $10,000 in overtime could shave a couple thousand dollars off their federal tax bill. A hotel bartender making $45,000 plus $5,000 in tips could get back all the federal taxes withheld from their tips.
For lower-income workers, the impact is more modest. A retail employee earning $28,000 with some overtime, or a diner server making $20,000 in wages and tips, could deduct all of their extra earnings — but with incomes low enough that standard deductions already erase most federal taxes, their refunds might grow by only a few hundred dollars.
So, Trump’s “no tax on overtime” law could mean bigger federal tax refunds for many middle-income workers across the Mid-Atlantic, especially in industries like healthcare, manufacturing, and construction where extra hours are common. But don’t expect your weekly paycheck to grow. The savings will come when you file your 2025 taxes in early 2026.
And you’ll still owe state income taxes on your overtime and tips. The new federal law doesn’t change state tax laws.
Jerry Haught is a New Jersey-based journalist with the Mid-Atlantic Connect Team.