The "no tax on overtime" deduction only covers the premium pay portion and does nothing to reduce wages counted by Social Security's earnings test. Social Security's 2026 earnings limit is $24,480, and exceeding it triggers $1 withheld for every $2 over. This calculation is based on total wages, not taxable income.
Workers collecting early benefits should separately calculate total wages against the Social Security limit and qualifying overtime premium for the federal deduction before overtime season. Many financial professionals are salespeople paid on what they push, not whether you end up wealthier. A fiduciary is the opposite.
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Picture a 64-year-old on a seasonal wildfire mitigation crew in the Mountain West. He filed for Social Security at 62 to help cover the mortgage. Then a brutal fire season hit, and the overtime started piling up.
By August, he had logged roughly 600 hours at time and a half. A buddy at the fire cache mentioned the new federal "no tax on overtime" deduction. He assumed the extra pay would be protected from Social Security's earnings test.
The tax break follows part of his overtime onto his federal return. Social Security follows the entire paycheck. Public Law 119-21, commonly known as the One Big Beautiful Bill Act, created a temporary deduction for qualified overtime compensation through 2028.
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