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When did Trump's no tax on overtime start? Check list of states where it doesn't apply
Trump’s overtime tax break faces backlash as some states pass laws blocking residents from using the federal deduction, eliminating the benefit.
President Donald Trump's tax break on overtime payment, signed into law through the 'One Big Beautiful Bill,' has come under scrutiny as several states have passed laws to cut the benefits extended under this law.
Trump signed the One Big Beautiful Bill Act into law on July 4 this year. Among other tax breaks, it also included no federal income tax on overtime payments - up to $12,500 for singles, $25,000 for married couples. The no tax on overtime, as well as no taxes on tips, were two of the major campaign promises of Donald Trump.
However, in November, some states passed state-level laws to exempt citizens in these states from the deduction offered in the federal income tax. As a result, after the revisions, the tax breaks will no longer apply to residents of these states. The reason: protecting their budget.
When Did No Tax On Overtime Start?
No tax on overtime was implemented by Trump on July 4 and it took effect retrospectively on all incomes starting January 1, 2025. Thus, the provision is already in effect, and US taxpayers with overtime income will see the deduction in taxable amount starting the next tax filing season.
How Does Now Tax On Overtime Work?
The law provides a deduction, not a full tax exemption, meaning overtime pay is still taxed except for the part that qualifies for the deduction. Only the premium portion of overtime—such as the extra $10 in a jump from $20 to $30 per hour—can be deducted from federal income tax. Certain types of overtime, like voluntary or non-FLSA overtime, may not qualify for this benefit.
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List Of States Where Overtime Pay In Taxed
As of now, five states have moved to restrict the federal exemption on taxes on overtime. Here are the details of the states and the law passed to restrict.
1.Washington: Washington City Council passed an emergency amendment in November 2025, rejecting the no tax on overtime provision that the federal government extended under the One Big Beautiful Bill.
2. New York: New York has brought in two new provisions in the state's income tax laws, which will bypass the federal government's no overtime tax law.
3. Illinois: Illinois, as of now, has not put into effect the no tax on overtime law. It is expected to pass separately provisions like New York to tax overtime deductions allowed by the federal government.
4. Colorado: Colorado has announced that it will not adopt the no tax on overtime provision. It has added a new provision whereby state residents are expected to report overtime pay and pay taxes for it.
