Millions claimed Trump’s ‘no tax on overtime’ deduction. The Treasury calls it a ‘home run,’ but Congress may not be able to afford to keep it

Eligible taxpayers are also able to deduct tip income, auto loan interest and, for seniors, an enhanced tax break as a result of the OBBBA. But it turns out the new deduction for qualified overtime compensation is particularly popular.

So far, filers have claimed the 'no tax on overtime' deduction on 25% of tax returns for 2025 (around 20 million filers), Treasury Secretary Scott Bessent said during an appearance on Fox and Friends. It's been so successful, he referred to the deduction as "the home run" of tax breaks (1).

In comparison, the deduction for tip income reached about 4.6 million taxpayers, Bessent said (2).

But the popularity of the 'no tax on overtime' deduction could end up costing the federal government (and any state governments that follow suit) more than anticipated — becoming a victim of its own success.

How the deduction works

The 'no tax on overtime' deduction only applies to overtime pay covered under the Fair Labor Standards Act (FLSA). However, eligible overtime pay is still subject to state, local and payroll taxes.

It phases out at $150,000 for single filers and $300,000 for joint filers.

The new tax break excludes specific occupations such as lawyers, teachers and, more broadly, 'white-collar' jobs. It also excludes self-employed and independent contractors. Some state laws and union contracts could also nullify the tax break.

So, for example, while about 97.7 million workers were eligible for overtime pay under the FLSA in 2023, "only an estimated 8% of hourly workers and 4% of salaried workers work FSLA-qualified overtime on a regular basis," according to a 2024 analysis from The Budget Lab at Yale, a non-partisan policy research center (3).

How much it could cost

The Budget Lab estimates that an income tax deduction for overtime pay would cost $866 billion over 10 years (4). This assumes taxpayers don't change their behavior, such as working longer hours to maximize tax-advantaged overtime pay.

"The overtime tax deduction will cut federal revenue by tens of billions of dollars, and potentially cost states hundreds of millions, depending on how they define taxable income," according to the Economic Policy Institute (EPI) (5).

States can choose whether to follow federal tax cuts, including 'no tax on overtime.' For states that choose to adopt the federal policy, "the policy will substantially reduce funding for public services," says the EPI.

There's also bipartisan interest in expanding the deduction to include workers who aren't covered under FLSA, such as firefighters and police officers, which could further cut federal revenue.

How to avoid over-claiming

Some workers may be claiming the deduction when they aren't eligible for it — which could explain the 'popularity' behind the tax break.

"Potential inaccuracies resulting from the overtime deduction provision could come from three places," according to the Bipartisan Policy Center. These include unintentional over-reporting, intentional over-reporting (which is illegal) and underreporting (6).