What Hospice Care Nursing Staff Need to Know About Overtime Pay and the “No Tax on Overtime” Headlines
Many hospice care nurses and staff are hearing talk in the news about “no tax on overtime pay” thanks to the One Big Beautiful Bill Act (OBBBA). But is overtime really tax-free? The answer is – not exactly. Here’s what you need to know to avoid confusion and make the most of the new rules.
Key Points of Interest
- Your paychecks will still have regular tax withholdings taken out of overtime pay.
- At tax time, you can deduct the overtime premium (above your regular rate), up to set limits, on your federal return.
- There is no need to itemize your tax deductions to claim this overtime benefit.
- Monitor your payroll information and talk to HR or payroll if you have questions about your reported overtime.
Understanding the Basics
- Retroactive for 2025: The tax benefits on overtime start from the beginning of 2025, so payroll and tax records from this year are relevant.
- All Comp is Reported: Employers will still report your entire compensation, including base and overtime pay, just like before.
- Overtime Still Gets Taxed: Overtime pay is still subject to regular payroll tax withholdings: federal income tax, Social Security, and Medicare. Your W-2 at year-end will reflect this.
What’s Changed? The Overtime Deduction
The new law allows you to deduct part of your overtime from your income when you file your taxes. The deduction only covers the overtime “premium” you earn—i.e., the additional amount above your regular hourly wage.
- Example: If your usual rate is $20/hr and your overtime rate is $30/hr, only the extra $10/hr qualifies for the deduction.
The maximum deduction:
- $12,500 if you file single
- $25,000 if you file jointly
- If your income is above $150,000 (or $300,000 for joint filers), the deduction gets smaller and eventually disappears.
Good news: You don’t need to itemize on your taxes to claim this; it’s available to everyone who qualifies.
What You Need to Do as an Employee
- Track Your Overtime: Make sure your payroll records reflect the correct base rate and overtime premium, as only the premium is eligible for the deduction.
- Expect Withholdings: Your paycheck will continue to have taxes taken out for all your pay, including overtime.
- Look at Year-End Documents: Your W-2 will list both your overall pay and the specific overtime amounts, which will help you when filing your taxes.
What Employers Should Do
- Work Closely with Payroll: Ensure overtime pay is tracked accurately and reported correctly, especially if using a payroll service.
- Clear Communication: Inform staff about how overtime is reported and clarify which portion of their overtime will help lower their federal income tax bill.
By staying informed you can maximize your after-tax income and avoid confusion when filing your return next year. If you have questions, ask your payroll department or a tax professional for guidance tailored to your situation.