Trump Overtime Tax Break More a Political Tagline Than Tax Relief

The 2025 tax-and-spending law’s overtime tax break, pitched as relief for working-class taxpayers, is a testament to how policy falls apart when it’s designed for news network soundbites rather than administration.

The 2026 filing season is beginning to take shape, and both workers and employers are staring down a deduction that’s opaque, risky, and structurally flawed. Despite the messaging, it doesn’t remove overtime pay from the tax system—it merely offers a deduction workers must calculate themselves, often months after the tax was taken out of their paycheck.

Framed as a necessary expenditure to give relief to overworked Americans and a stimulus for the manufacturing sector, it has turned out to be less generous and more confusing than advertised. To make things more interesting, the IRS structured the rollout so employers are incentivized not to aid employees in calculating their eligibility.

There’s still time to prevent this from becoming a full-blown administrative disaster. At minimum, the IRS could issue a legal safe harbor for employers that try to help, and some model W-2 statements to guide employees for good measure. Absent those fixes, the deduction likely will be more confusing than helpful.

In most instances, workers still pay withholding on their overtime income up front, and only (maybe) get some of it back at filing time.

Even that modest benefit comes with caveats. The deduction applies only to the “half” portion of “time-and-a-half” wages and is subject to a $12,500 overall cap. Unless you’re doing a fair amount of overtime in a lower-wage job, the tax savings are minimal.

This means someone making $15 per hour would need to work about 33 hours of overtime per week across 50 weeks of the year to make full use of the deduction. Someone earning $30 per hour needs only half as many overtime hours to max it out.

The deduction doesn’t merely leave it to workers to navigate the maze of eligibility rules and wage calculations; it demotivates employers from helping. Employers that aid their employees by reporting eligible overtime compensation risk liability under information return fraud laws if they get it wrong.

Those that ignore the deduction entirely face no penalty whatsoever. For small businesses without a dedicated tax staff, the decision is simple: Let your employees fend for themselves lest you risk compliance problems of your own.

The burden of calculating the deduction falls on the taxpayer, many of whom may not have access to detailed wage breakdowns or complex payroll analytics tools. The overtime deduction thus may function as a stealth subsidy for those with the time and tools to chase it down.

Workers without access to tax professionals or granular payroll data will be more likely to miscalculate or underclaim the benefit—if they even know it exists and want to risk trying to get it. Employers won’t offer guidance. And the IRS—lacking updated W-2 forms, clear enforcement mechanisms, and the staff necessary to administer such a program— very likely won’t have the infrastructure or labor hours to police the tax break’s rollout.

The result bears little resemblance to the promised change. It’s Rumpelstiltskin tax policy—the government will spin your pay stubs into gold, but you’ll have to decode its riddle or risk everything.

The cleanest solution is the most unlikely to happen: Scrap the deduction. Assuming this isn’t going to happen just yet, some administrative surgery is in order.

First, the IRS should establish a legal safe harbor for employers that attempt to report eligible overtime compensation using good-faith and IRS-approved methods. Without this, employers will continue to choose legal safety over transparency.

The IRS simultaneously should issue a model W-2 statement with standardized language and basic calculation instructions that employers can include with year-end tax forms. It can’t magically spin the straw policy into coherent gold, but it might at least make it decipherable.

More ambitiously, the Department of the Treasury or Congress should consider creating a simplified flat-rate deduction election. Any workers earning below a given income threshold and logging more than a set number of overtime hours could be allowed to claim a standard amount, without having to perform forensic accounting on their pay stubs.

The overtime deduction was supposed to be a straightforward win for workers. In practice, it demands much from those with the least support, punishes employers that try to help, and rewards silence over transparency. If policymakers want to deliver something meaningful to the people clocking extra hours, they’ll need to do better than this.

Andrew Leahey is an assistant professor of law at Drexel Kline School of Law, where he teaches classes on tax, technology, and regulation. Follow him on Mastodon at @andrew@esq.social

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