What Middle-Class Workers Get Wrong About Overtime and Take-Home Pay
Written by
Emily Fowler
Edited by
Rebekah Evans
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
For middle-class workers entitled to overtime, the idea of extra money at the end of the month feels like progress. In exchange for working extra hours, they look forward to more breathing room when it comes to their finances. Which means it can be confusing when their paycheck seems smaller than they expect.
That gap between expectation and reality can be frustrating and changes brought in by the One Big Beautiful Bill Act (OBBBA) add more confusion to the mix for some.
Find out what middle-class workers get wrong about overtime and their take-home pay.
How New Tax Rules Affect Overtime
Laurie Smith, tax partner at Wiss, explained that deductions introduced by the OBBBA, commonly described as “no tax on overtime,” means employees who earn overtime might have to be more proactive than usual.
“While the headline sounds simple, the reality is more nuanced,” she said.
The bill hasn’t completely stopped all taxes on overtime. It’s a temporary (for tax years 2025 to 2028) tax deduction for only the overtime premium earned under the Fair Labor Standards Act (FLSA).
Though Forms W-2, 1099-NEC, 1099-MISC and 1099-K will be updated in tax year 2026 to separately itemize qualified overtime, Smith noted that this isn’t the case for tax year 2025.
This means that taxpayers who earn overtime should be prepared to provide their tax professional with clear documentation, like payroll reports or year-end pay stubs, to make sure they’re entitled and claiming correctly.
Where Expectations Go Wrong
One of the most common misunderstandings Smith sees is people assuming that the entire amount of overtime pay is now tax-free. In reality, the new deduction only applies to the overtime premium — the extra amount paid on top of the regular wage.
For example, for someone on an hourly rate of $22 who’s paid $33 per hour for overtime, their overtime premium is $11 per hour. If they worked 200 overtime hours in 2025, their total overtime pay would be $6,600.
The regular pay for those hours would have been $4,400, so only $2,200 counts as qualified overtime for the deduction.
Is Everyone Eligible?
Another thing that middle-class workers might not realize is that not everyone who earns overtime can benefit from the new deduction.
According to the IRS, workers can deduct the overtime pay above their regular rate, up to $12,500 ($25,000 for joint filers), with the deduction phasing out over $150,000 ($300,000 for joint filers).
And, not everyone receives FLSA-qualified overtime, which is required for the deduction, so it’s worth checking the Department of Labor information on coverage and exemption.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
More From GOBankingRates
