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The "Big Beautiful Bill" passed in July and includes provisions to eliminate taxes on overtime pay — retroactive to the start of 2025 — but there are a few catches, according to MSN reporting. 

First, not all overtime pay is tax exempt. The Wall Street Journal reported that the tax break only applies to part of the hourly overtime wage — specifically the "half" portion of the "time and a half pay", required under the federal Fair Labor Standards Act.

Also, the tax savings only applies to federal income tax. All other taxes and deductions, such as state and local income tax, Social Security and Medicare taxes will still be withheld. 

There is also a cap on how much overtime pay an employee can file for tax exemption. According to MSN reporting, that amount is $12,500 per person annually, or $25,000 for people filing together. Earners who make more than $150,000 (or $300,000 combined between two people filing together) are not eligible for tax-free overtime pay.

To learn more about the long-term fallout of the law and how to maximize overtime pay, click here for the full article.