5. Overtime Pay Gets Special Tax Treatment
Helpful—but more complex than it sounds
Despite political slogans, overtime pay is not tax-free. Instead, part of it may be deductible.
Only the extra portion above your regular wage qualifies, and only up to certain limits.
Pros
- Rewards workers who put in extra hours
- Meaningful for middle-income earners
Cons
- Complicated rules
- Governed by federal labor law only
- Requires a new IRS form (Schedule 1-A)
Trump’s Overtime Tax Proposal 2025: The Truth About Your Extra Earnings
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