--- title: What Small Business Owners Need to Know About “No Tax on Overtime” description: "“No Tax on Overtime” has lots of misconceptions. Here's how to answer your employees: Will I get larger checks now? Is OT tax-free? Does this apply to all OT pay? How much will this save me? Will “No Tax on Overtime” last forever?" --- [CSI Accounting & Payroll Blog ](https://blog.csiaccounting.com) # [What Small Business Owners Need to Know About “No Tax on Overtime”](https://blog.csiaccounting.com/what-small-business-owners-need-know-no-tax-overtime) Written by [Bret Asmussen](https://blog.csiaccounting.com/author/bret-asmussen) | Feb 20, 2026 5:00:00 PM Just like [“No Tax on Tips”](https://blog.csiaccounting.com/how-employers-address-employees-top-5-misconceptions-no-tax-tips), the “No Tax on Overtime” portion of the One, Big, Beautiful Bill Act (OBBB) has a lot of misconceptions around it. **Do your employees have questions?** I bet so, and I’ll tell you how to answer them. At CSI Accounting & Payroll, we’ve provided small business financial and advisory services for 60 years. We stay on top of law changes that may affect our clients, including “No Tax on Overtime”. Let’s discuss: - **Will my employees see larger checks throughout the year if they work overtime?** - **Does this mean overtime won’t be taxed at all?** - **Does this apply to all overtime pay?** - **How much money will this save workers?** - **Will “No Tax on Overtime” last forever?** ## **Will My Employees See Larger Checks Throughout the Year if They Work Overtime?** **No**, overtime pay stays the same throughout the year, and taxes are the same on checks, too. **“No Tax on Overtime” is actually a deduction on your employees’ returns during tax season.** So, why’s there a line on your [employees’ pay stubs](https://blog.csiaccounting.com/what-does-this-mean-how-read-pay-stub) that says something like “FLSA OT premium”? It’s just a placeholder so that when they get their W-2s, they can see what their premium for the year was. This number is used to determine their tax deduction. **As an employer, it’s your responsibility to ensure that the qualified overtime compensation is tracked and makes it into your payroll system.** If you work with CSI Accounting & Payroll, we do this for you! No more worrying about penalties for non-compliance. ## **Does This Mean Overtime Won’t Be Taxed at All?** The deduction only applies to **federal income taxes**, and it’s only eligible for **up to $12,500 (single filers) and $25,000 (married filing jointly) in overtime premium compensation**. The deduction begins to phase out for workers with a modified adjusted gross income (MAGI) over $150,000 (single filers) or $300,000 (joint filers). FICA taxes (Social Security and Medicare) are still paid fully by both employees and employers. ## **Does This Apply to All Overtime Pay?** **No, not all of the pay.** Only the **premium** portion (the extra "half" in time-and-a-half pay) of overtime compensation qualifies. Plus, remember the cap of $12,500 for single filers and $25,000 for married filing jointly. ## **How Much Money Will This Save Workers?** The deduction is capped annually at **$12,500 for single filers** and **$25,000 for married individuals filing jointly**. It’s not realized throughout the year, but it’s a deduction claimed at tax time. ## **Will “No Tax on Overtime” Last Forever?** **Nope!** Like many tax laws, it’s only here to stay for a few years. This deduction will only apply to 2025-2028 tax years unless extended by Congress. So if your employees have worked any overtime hours, tell them to find the premium on their W-2s and claim the deduction this tax season! ## **Navigate Law Changes With Your Payroll Specialist!** Now that you know about how quickly misconceptions can spread, are you ready to check out payroll services with CSI Accounting & Payroll to stay on top of law changes that affect your business? To see if we can be a good fit, click the button below for a free consultation: Not ready to talk? That’s okay! 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