No Tax on Overtime’ Was Always a Lie—Now It’s a $50 Billion Overclaim Disaster

The so-called “no tax on overtime“ is a textbook bait-and-switch in which taxpayers were promised no tax on overtime and got something very much less. Though the limited deduction for overtime pay is what is in the law (discussed below), it very much appears that taxpayers are claiming the campaign slogan of “no tax on overtime” rather than the law that was passed. Unless the IRS is able to claw back these erroneous claims, it appears that the US treasury could be out $15-$25 billion.

I warned when the One Big Beautiful Bill passed last year that it ranked as the worst piece of tax legislation in U.S. history, and the overtime fiasco is just one of the provisions that proves it. What the statute actually delivers is not “no tax” on overtime at all. It is a deduction—available only to workers in jobs covered by the federal Fair Labor Standards Act (FLSA)—for exactly one-third of the total overtime pay they actually receive. If your regular rate is $20 an hour and you earn $30 for overtime hours, only the extra $10 qualifies; the first $20 does not. The deduction is capped at $12,500 for singles and $25,000 for married couples filing jointly, then phases out once income hits $150,000 single or $300,000 joint. It does not apply to overtime required by state laws, private agreements, or special federal rules for railroad and airline workers. None of that fine print made it into the campaign speeches. The Internal Revenue Service (IRS) never required employers to report the qualifying amount on W-2s this year, so Box 14 numbers are all over the map—some list the full overtime pay, others guess, and many put down nothing. Tax preparers are now buried in pay-stub math just to fix it. The Treasury Department’s own data released this month show nearly 22 million returns—more than 20 percent of all filers—have already taken the break, blowing past every full-year forecast. With the Internal Revenue Service (IRS) now operating on a severely cut budget, it still had to do the extra work of implementing the One Big Beautiful Bill—and now faces the massive additional burden of chasing down clearly erroneous claims that stem from huge numbers of taxpayers remembering the campaign promise, not the tax law itself.

This mess is exactly why limited government and simple tax rules matter. Instead of Reagan-era principles—lower, flatter rates on a broader base that treat all income the same—we got targeted gimmicks sold with slogans that no one read the fine print on. The deduction sunsets after 2028 unless Congress extends it; Congress should kill it now, before the audits start, the fraud penalties fly, and another layer of bureaucratic waste cements itself into the code. Taxpayers deserve straight talk and fiscal sanity, not more Washington smoke and mirrors that turn honest overtime into a compliance nightmare.

I guarantee the same fiasco is going to happen when the IRS gets around to auditing the results of no tax on tips and no tax on Social Security.