It is no secret that members of the UWUA have differing political views. One thing all workers can agree on is their interest in keeping more of what they earn. No one really likes to pay taxes, and everyone looks for ways to pay less.
During the 2024 presidential campaign, then candidate Trump made no taxes on overtime a cornerstone of his campaign. This resonated with many hard-working Americans, including members of the UWUA where it is common to work 20% – 40%, or even more, overtime annually. The idea of getting to keep more of our hard-earned money, particularly that which we earn at the expense of significant additional time away from our families, sounds good to everyone regardless of political leanings. Included in President Trump’s self-titled Big Beautiful Bill were provisions to follow through on his campaign promise of no tax on overtime, and as we are all aware, the bill was signed into law earlier this summer. So, what does it mean for workers?
For starters, the provisions of the bill related to overtime tax are retroactive to the beginning of the year. This is significant because those who qualify will get an additional six-month benefit in this tax year. Does that mean you are due a check for taxes already paid? No such luck. In 2025, you will continue to pay taxes on all overtime worked; however, if you qualify, you can utilize a tax deduction when filing your taxes. This provision doesn’t really follow through on putting more money in the pockets of hard-working Americans but may reduce their tax liability at tax time.
So, how does it work, and will it benefit you and your family? To be eligible for the tax deduction, you must be a W-2 employee; this means independent contractors are not eligible. All members of the UWUA are W-2 employees and therefore would be eligible. Next, your overtime must be required by the Fair Labor Standards Act (FLSA), which generally means hours worked beyond 40 hours in a work week. Most UWUA members receive overtime after 8 hours in a day, but there are so many variations in pay that are unaccounted for that we may need further clarifications for some. Even if you receive overtime after 8 hours, that overtime would still be eligible provided you worked more than 40 hours in a week. Bear in mind, the FLSA requires overtime after 40 hours of worked time. UWUA contracts provide paid time for vacation, personal time, medical, paid rest, and other non-work hours; these hours would not be included in the 40-hour calculation. So, although you may be paid 40 hours of straight time in a workweek, if they were not “worked” hours, then overtime associated with that workweek would not qualify.
Now for the shocking part: the tax break only applies to a portion of overtime pay — the “half” of “time and a half pay” premium required under the FLSA. So, if a worker makes $40 an hour, then their time and a half overtime would amount to $60 an hour. Of that $60, only $20 (the “half” part of “time and a half”) qualifies. Okay, so that isn’t exactly what I thought it meant, but I guess at least that $20 is tax free, right? Not so fast — the bill exempts federal income tax, but not other federal taxes like Social Security and Medicare, and certainly not state and local taxes. So no, you are not actually going to realize tax free overtime. Oh, and do you ever get paid double-time? The FLSA does not require a double-time premium, so for double-time overtime only the half-time premium required would qualify.
You might say, “I work a lot of overtime, so the savings are going to add up in the end.” Unfortunately, there are limits on the amount of the total deduction: $12,500 per year for single filers or $25,000 for joint filers, and these deduction limits are further reduced based on earnings, with reductions starting at $150,000 for single filers and $300,000 for joint filers. The amount of overall savings per individual depends on several factors but for practical purposes, if you qualified for the full $12,500 deduction without any reductions and you were in the 24% tax bracket you would save approximately $3,000 off your total tax liability. Lastly, don’t get too used to this savings as the no tax on overtime provisions of the bill expire in 2028.