No Tax on Overtime: Practical Rules, Limits, and 2026 Watchpoints

No tax on overtime is top of mind in 2026 because several jurisdictions now treat certain overtime amounts more favorably than standard wages. In the U.S., federal rules enacted in mid-2025 created a no tax on overtime deduction framework for “qualified overtime,” while guidance is still rolling out. In Europe, France continues to exempt overtime from income tax up to a capped annual amount, and Belgium extended special “relance”/overtime regimes with withholding and social-security relief in specific cases. For workers, no tax on overtime can boost take-home pay; for employers, it affects payroll reporting, year-end slips, and how overtime buckets are tracked against annual caps. Below we distill who qualifies, how much is effectively tax-free, and what employers should implement now.

At a glance: who qualifies and how much is covered

United States (federal): “No tax on overtime” operates as a deduction for qualified overtime starting in 2025; thresholds and phase-outs apply and formal regulations are pending. Employers generally do not change withholding for 2025 while guidance is finalized.:contentReference[oaicite:0]{index=0}
France: Overtime pay is exempt from income tax up to an annual cap (recently €7,500, subject to policy updates), with declaration requirements if the cap is exceeded.:contentReference[oaicite:1]{index=1}
Belgium: Program-specific relief (e.g., “relance hours”) extended into late-2025: no overtime premium, no social-security, no withholding—making gross≈net for those hours; check sectoral and time limits.:contentReference[oaicite:2]{index=2}

Payroll mechanics: withholding, W-2/annual slips, and caps

Under no-tax regimes, the obligation typically shifts to year-end reporting: employers tag qualified overtime buckets, track annual caps by employee, and surface them on wage statements (e.g., W-2) or local equivalents. U.S. federal notices also covered transitional penalty relief for new information reporting on tips and qualified overtime in tax year 2025.:contentReference[oaicite:3]{index=3}

Worker scenarios (2026)

Hourly worker with frequent overtime (U.S.): Expect a line-item deduction for “qualified overtime” on the return; phase-outs can apply at higher incomes. Employers continue standard withholding until the final IRS regs land.:contentReference[oaicite:4]{index=4}
French employee exceeding the cap: Overtime above the annual ceiling becomes taxable; make sure year-end declarations reconcile multiple employers.:contentReference[oaicite:5]{index=5}
Belgian relance hours: Where applicable, certain overtime hours carry no withholding and no social-security—planning impact is immediate on net pay.:contentReference[oaicite:6]{index=6}

Employer checklist

Tag overtime at the time-clock level (FLSA/collective agreement definitions) and split qualified vs. non-qualified hours for capping.
Update payroll exports and year-end statement fields for overtime buckets; follow evolving U.S. federal regulations and local EU circulars.:contentReference[oaicite:7]{index=7}
For France/Belgium, align with current caps and sectoral rules; monitor 2026 budgets for ceiling updates.:contentReference[oaicite:8]{index=8}

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