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Werner: No Overtime Tax from 25-28? | Quick Tax Tip

New tax proposal offers four years of relief for qualified workers, starting retroactively in 2025.

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Quick Tax Tip
With Art Werner
CPE Today

During his campaign rallies, Donald Trump made repeated promises to eliminate taxes on overtime pay, and that promise has now been incorporated into legislative language. According to tax expert Art Werner, the proposed tax break is indeed included in the new tax bill, and it’s one of the few provisions that start early and end early.

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“This is one of the parts of the bill that actually sunsets,” said Werner in a recent episode of Quick Tax Tip. “It goes from 2025 to 2028, unlike the rest of the bill, which largely begins in 2026.”

The provision eliminates federal tax on qualified overtime compensation, but don’t get too excited just yet. The deduction only applies under very specific conditions:

  • The overtime must exceed the employee’s regular rate of pay, as defined by the Fair Labor Standards Act (FLSA).

  • The deduction is not available to highly compensated individuals.

  • Overtime compensation must be reported using a valid Social Security number.

  • The pay structure must be reasonable, so don’t think you can game the system.

“They wrote it in a way to prevent manipulation,” Werner explained. “For example, you can’t pay someone minimum wage for 40 hours, and then $100,000 for hour 41. The IRS will definitely issue more regulations, but it’s clear they’re trying to close the loopholes.”

What makes this provision even more unique is its start date: it’s retroactive to January 1, 2025, a full year ahead of most other tax changes in the bill. That gives tax professionals a short runway to start preparing clients now, especially those with employees likely to benefit from the deduction.

“For certain clients of ours, this could actually be a really, really interesting tax benefit,” Werner said.

However, it won’t apply universally. The law is designed to provide relief to average workers who put in extra hours, not executives or high-income earners.

With only four years of potential benefit and plenty of complexity in the fine print, CPAs and tax advisors will need to:

  • Identify eligible clients based on income levels and overtime history.

  • Review compensation structures to ensure compliance with FLSA definitions.

  • Watch for IRS regulations that could tighten the eligibility criteria.

  • Begin planning for 2025 filings now—especially if clients will benefit retroactively.

Whether you’re advising small businesses or tracking new ways to add value for your clients, this new provision could deliver real tax savings—but only for those who play by the rules.