The phrase doing the rounds is "no tax on overtime". The provision it refers to is real, but the name describes something considerably narrower than most people take it to mean, and the gap between the two is where the disappointment happens.
Three things are true and worth separating.
It is a deduction, not an exemption. The provision is an above-the-line federal income tax deduction, available whether or not you itemise. It reduces your taxable income. It does not make overtime income disappear from your return, and it does not touch payroll tax at all. Social Security and Medicare are still withheld on the full amount.
It applies to the premium, not the whole overtime paycheck. This is the part that gets lost. Under the Fair Labor Standards Act, overtime is time-and-a-half. The deduction covers only the extra half -- the premium portion -- not the base hourly pay that sits underneath it. If you earn $30 an hour and work an overtime hour at $45, the qualifying amount is the $15, not the $45. A worker imagining that a whole quarter of overtime earnings becomes tax-free is out by a factor of three before any cap applies.
It is capped and it phases out. The maximum annual deduction is $12,500 for a single filer and $25,000 for joint filers, and it phases out above modified AGI of $150,000 single and $300,000 joint. Married taxpayers must file jointly to claim it, and an SSN is required.
What it is actually worth follows from the fact that it is a deduction: the saving is the deduction used multiplied by your marginal rate. Using the full single-filer cap, that is $1,500 at the 12 percent bracket, $2,750 at 22 percent, $3,000 at 24 percent, and $4,000 at 32 percent. Those are meaningful sums, and they are also the ceiling rather than the expectation, since claiming the full cap means having earned 12,500 dollars of qualifying premium in the year.
The timing matters too. The provision runs for tax years 2025-2028, so it is a four-year window rather than a permanent feature, and employer reporting of qualified overtime has transition relief for the first year.
None of this is advice, and the dollar figures above are arithmetic on the statutory cap rather than a projection of anyone's return. Statutory parameters are from IRS Fact Sheet FS-2025-03 and Public Law 119-21.
A calculator that works the premium out from your actual hours is at noovertimetax.com.