No Tax on Overtime Provision in the One Big Beautiful Bill Act
The No Tax on Overtime provision in the One Big Beautiful Bill Act (OBBBA) creates a temporary federal income tax deduction for qualified overtime earned in tax years 2025 through 2028. For this deduction, only the premium portion of overtime (i.e., the extra “half” of time-and-a-half pay) that meets the federal Fair Labor Standards Act (FLSA) definition counts as qualifying compensation. By January 31, 2026, Harvard will provide eligible employees with a statement reflecting their estimated 2025 qualifying overtime compensation.
In many cases, Harvard provides more overtime than the federal standard, so some overtime might not meet that narrower federal definition of hours worked over 40 in a work week. As a result, the estimated 2025 FLSA-eligible overtime amount on the overtime statement may be lower than the total overtime compensation paid by Harvard.
The 2025 overtime statements are now available in PeopleSoft. You can access your statement in PeopleSoft under My Pay > 2025 FLSA OT Tax Reporting. If your statement shows a $0 balance, this means you did not earn qualifying overtime in 2025.
Quick Summary
- A new federal law gives certain hourly employees a special tax deduction for qualifying overtime.
- It applies to tax years 2025-2028. Employees will not see a change in their paychecks.
- The deduction applies to an employee’s tax filing.
- Harvard is providing employees with a statement showing their estimated 2025 qualifying overtime amount.
Employee Frequently Asked Questions (FAQ)
While tax advice cannot be provided, the following information addresses common employee questions. Employees should seek professional tax advice for any income tax questions and assistance.
A new federal law called the “One Big Beautiful Bill Act,” signed on July 4, 2025, created a temporary federal income tax deduction for certain types of overtime pay earned by eligible hourly employees.
For more information, visit the IRS website.
This deduction is temporary and applies to tax years 2025, 2026, 2027, and 2028.
You may qualify if:
- You are an hourly paid employee (non-exempt), and
- You receive at least time-and-a-half overtime pay (1.5 times your regular hourly rate) for any hours worked over 40 in a week.
These criteria reflect the federal overtime rules set by the Fair Labor Standards Act (FLSA). Exempt employees (e.g. salaried professionals) under the FLSA do not receive overtime pay and are, therefore, not eligible.
No. Your federal tax withholding will not change because of this law. Your overtime pay is still subject to federal and state withholding, Social Security, Medicare, etc.
Only the premium portion of overtime pay required by the FLSA qualifies, which is the extra half above the regular rate of pay for hours worked over 40 in a work week.
Important: Some Harvard contract rules are broader than the FLSA rules. Not all overtime that Harvard pays will qualify for this deduction.
No. Even when the overtime hours qualify under FLSA, only part of the overtime pay can be used.
Time-and-a-half overtime pay includes:
- 1.0 x your regular hourly rate (your normal pay), plus
- 0.5 x your hourly rate (the overtime premium).
Only the overtime premium — the “0.5” — can be used for this deduction. The regular part of your pay — the “1.0” — does not qualify.
As mentioned above, not all overtime that Harvard pays will qualify for this deduction.
You can claim the deduction when you file your federal tax return. If you have questions about claiming the deduction, please speak with a tax professional.
Yes. For tax years 2025 through 2028, eligible workers may deduct up to:
- $12,500 of qualified overtime pay for single filers.
- $25,000 of qualified overtime pay for married couples filing a joint return.
Yes. Although employers are not required to provide this information until the 2026 tax year, for the 2025 tax year, Harvard is providing a statement that shows the amount of your estimated 2025 overtime pay that qualifies for this deduction. You can use that information when you file your tax return.
You can access your statement in PeopleSoft under My Pay > 2025 FLSA OT Tax Reporting. If your statement shows a $0 balance, this means you did not earn qualifying overtime in 2025.
Please email ufs_crt@harvard.edu with questions.
Harvard University as an institution does not advise on any personal income tax requirements or issues. This notice and FAQs are for general information purposes only and do not represent tax advice, either express or implied. You are encouraged to seek professional tax advice for any income tax questions and assistance.