WACO, Texas (KXXV) — A new federal tax break on overtime pay could benefit nurses and other essential workers who regularly clock extra hours, with potential savings of thousands annually.
- The new "No Tax on Overtime" legislation allows workers to deduct overtime earnings from their federal taxable income, potentially saving thousands of dollars annually
- Essential workers like nurses, first responders and factory employees who regularly work beyond 40 hours per week stand to benefit most from this change
- The deduction only applies to federal income taxes (not state or local) and is set to expire in 2028 unless extended by future legislation
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Workers who regularly clock overtime hours could see significant tax savings under a new federal law that eliminates taxes on overtime pay.
"Since I was itty bitty, I have always know that I wanted to be in the medical field," said Avery Harrell, Clinical Nurse leader with Premier ER and Urgent Care who has been working as a nurse for 11 years.
In her profession, working more than 40 hours per week is common practice.
"I would say fairly often we get a decent amount of overtime just because we're already working those 12 hours shifts. And if you pick up just one extra that automatically puts you into that overtime slot," Harrell said.
While workers like nurses, first responders and factory workers qualify for overtime and receive time-and-a-half pay for those hours, the extra income doesn't always reflect in their paychecks after taxes.
The "No Tax on Overtime" legislation, part of what former President Donald Trump called his "Big Beautiful Bill," aims to change that financial equation for overtime workers.
"I've already had some of my nurses be like hey if there's overtime, when this happens just let me know," Harrell said.
Here's what workers need to know about the new overtime tax break:
- It's a tax deduction, not an exemption, meaning taxes will still be withheld from paychecks, but workers can claim the deduction when filing their annual 2025 tax returns.
- The deduction is capped at $12,500 for single filers and $25,000 for joint filers This amount is reduced by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 in the case of a joint return).
- For example, a single filer earning $50,000 who worked overtime hours totaling $10,000 would be taxed on $40,000 instead of their full income.
- Employers must include total overtime pay on W-2 forms, making it easier for workers to claim the deduction.
- The legislation only applies to federal income taxes, not state or local income taxes, though Texas residents already benefit from having no state income tax.
- The deduction is currently set to expire in 2028 unless extended by future legislation.
Harrell believes this change will make a significant financial difference for her and her colleagues.
"Having that little bit of extra coming off that taxes and not having to pay that extra in for all the extra work we put in throughout the year would make a huge difference. I mean that's someone's vacation every single year," she said.
This story was reported on-air by a journalist and has been converted to this platform with the assistance of AI. Our editorial team verifies all reporting on all platforms for fairness and accuracy.
