The no-tax-on-overtime deduction in the 2025 tax law is estimated to cost $89.6 billion in lost federal revenue from fiscal 2025 through 2029, according to Joint Committee on Taxation figures that the Treasury Inspector General for Tax Administration cites in an Oct. 15 audit report. TIGTA calls the overtime deduction the most significant of the four new provisions it examined.
The Congressional Research Service reports the same figure in a July 1, 2026 overview, and puts the annual cost at roughly $22 billion to $23 billion in each of fiscal years 2026 through 2028. TIGTA’s own wording is “over 4 years,” which matches the four tax years, 2025 through 2028, in which the deduction can be claimed.
For a worker who is paid overtime, or a retiree who still picks up extra hours, the question is what the deduction is worth on a return. The cap is $12,500, or $25,000 for married couples filing jointly, and it shrinks by $100 for every $1,000 of income above $150,000 ($300,000 for joint filers). It covers only the premium part of overtime pay, the “half” in time-and-a-half.
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What does the $89.6 billion figure measure?
The number is the Joint Committee on Taxation’s estimate of lost revenue, not money paid out to anyone and not a count of claims. TIGTA footnotes it to the committee’s May 28, 2026 publication JCS-1-26, the General Explanation of the Tax Provisions of Public Law 119-21. That is the law President Trump signed on July 4, 2025.
The same footnote gives estimates for two other provisions, $31.7 billion for the tips deduction and $30.6 billion for the car loan interest deduction. It says the lost revenue for the senior deduction is not reported separately. On those numbers, the overtime deduction costs nearly three times as much as either of the other two.
Who can take the overtime deduction?
The IRS fact sheet says the deduction covers extra pay above an employee’s regular rate, such as the half portion of time-and-a-half that the Fair Labor Standards Act requires. The pay must be reported on a Form W-2, a Form 1099 or another specified statement. It is open to people who itemize and people who take the standard deduction.
Filers need a Social Security number on the return, and married couples must file jointly to claim it. The same fact sheet says every provision it describes applies from 2025 through 2028, so a worker can claim the overtime deduction on four returns, not one.
TIGTA’s report shows the same two caps, $12,500 for single filers, heads of household and qualifying surviving spouses and $25,000 for married couples filing jointly. Older workers have a separate deduction to look at as well: the IRS says people 65 and older get an extra $6,000 per eligible person ($12,000 for a couple where both qualify), phasing out above $75,000 of modified adjusted gross income ($150,000 for joint filers).
Why does a Treasury watchdog care about overtime?
The report, number 2027-300-001, is titled “Implementation of Select Provisions of the Working Families Tax Cuts Act.” It examines the IRS’s implementation of the new deductions, and it reviewed e-filed returns the IRS accepted between Jan. 14 and April 15, 2026.
TIGTA’s audit asked how well the IRS has put select parts of the law in place, and its first recommendation concerned overtime. The report asks the IRS Office of Chief Counsel to consider adding examples of occupations exempt from the Fair Labor Standards Act to its overtime guidance, with references to Department of Labor guidance. Workers in exempt jobs are not entitled to overtime pay under that law.
The IRS said it addressed the point in August 2026. TIGTA agreed that the updated FAQs “meet the intent of our recommendation.” The report’s other findings, including about $976.8 million in questionable car loan interest claims on 473,361 returns, concern a different deduction, and the audit was signed by Diana M. Tengesdal, TIGTA’s deputy inspector general for audit.
Is the $89.6 billion a one-year cost?
No. Spread over the years the CRS describes, the deduction costs roughly $22 billion to $23 billion in each of fiscal years 2026 through 2028, which accounts for most of the total. The remainder falls in fiscal 2025 and fiscal 2029.
It is a projection, not a tally of claims already made. The CRS overview describes the figure as the amount by which the deduction would reduce federal revenues from fiscal 2025 to fiscal 2029.
Fiscal years begin Oct. 1, so fiscal 2025 began in October 2024 and fiscal 2029 ends in September 2029. That is why a deduction that applies to four tax years shows up across five fiscal years of federal budget accounting. The estimate covers lost revenue across that whole window, which is why it is larger than any single year’s cost.
How much of your overtime pay will the deduction cover?
The overtime deduction is one of several lines that decide a household’s tax bill from 2025 through 2028, and each has its own cap and income limit. A filer who counts on one deduction and misses the limits on another can be surprised at filing time.
Cut Your Retirement Tax Bill: 12 Moves is a 14-page guide that puts the 2026 numbers on one page and works out how much of your Social Security is taxed on one worksheet. It covers retiree tax lines such as the new $6,000 senior deduction ($12,000 for a couple), not the overtime deduction itself.
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This article was produced with AI assistance and edited for accuracy against the sources linked above.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
