When does no tax on overtime start
It started with tax year 2025 and is written to end after 2028. Nothing in the law extends it.
The timeline
| When | What applies |
|---|---|
| 4 July 2025 | Pub. L. 119-21 enacted, creating IRC section 225 |
| Tax year 2025 | First year you can claim. No separate W-2 reporting required; employers had penalty relief and taxpayers used reasonable methods to work the figure out |
| Tax year 2026 | W-2 box 12 code TT reporting becomes mandatory, and you may deduct only what is reported there. Form W-4 updated so you can adjust withholding |
| Tax years 2027 and 2028 | Continues on the same terms, with the caps still not indexed |
| Tax year 2029 | No deduction. Section 225(g) denies it for years beginning after 31 December 2028 |
Because the $12,500 and $25,000 caps carry no inflation adjustment, they are worth slightly less in real terms each year the provision runs.
"Start" usually means the refund, not the paycheck
The deduction began applying to pay earned in 2025, but the money does not arrive during the year. It arrives when the return for that year is filed, because employers cannot reduce withholding for it on their own.
If you want some of it sooner, the route is a new Form W-4 rather than waiting. The 2026 version has a line on the Deductions Worksheet for qualified tips and the time-and-a-half portion of overtime, which reduces withholding across the rest of the year.
Guidance has already moved once
The IRS fact sheet on this was reissued in August 2026 as FS-2026-13, replacing the January 2026 version. The newer one adds detail on FLSA coverage and exemptions, on W-2 corrections, on withholding procedure, and on federal employees, whose overtime is computed under their own rules.
There are no regulations for section 225, only the statute and these fact sheets, so this is an area where the detail can still shift.
Common questions
- When does no tax on overtime start?
- It applies to tax years beginning after 31 December 2024, so tax year 2025 was the first. The benefit arrives when you file for that year, not in your weekly pay.
- When does it end?
- After tax year 2028. Section 225(g) denies the deduction for any tax year beginning after 31 December 2028 unless Congress extends it.
- Can I still claim it for 2025?
- Yes, on your 2025 return. There was no required W-2 reporting that year, so the figure is worked out from pay records using the methods in Notice 2025-69.
- Do the caps rise with inflation?
- No. There is no inflation adjustment in the statute, so $12,500 and $25,000 stay fixed for all four years.