By Tami Luhby

(CNN) — Many Americans who work overtime will get a break on their taxes for the next few years — but it may not be as hefty as they think.

Congressional Republicans sought to fulfill President Donald Trump’s “no tax on overtime” campaign promise in their One Big, Beautiful Bill, which Trump signed into law in July. But the measure doesn’t actually exempt all overtime pay from federal income taxes.

Notably, only the earnings in excess of one’s standard hourly wage will be tax free. In other words, for those who earn time-and-a-half when working overtime, only the “half” will not be subject to tax.

“When you first hear that overtime won’t be taxed, most people would think it’s the whole amount in that bucket,” said Tom O’Saben, director of tax content and government relations at the National Association of Tax Professionals. “But unfortunately, it’s only the amount above their standard wage.”

That can make a big difference. Take an unmarried factory worker who earns $80,000, including $7,500 in overtime pay. He will receive a tax break of $550, on average, from the provision, said O’Saben, who did a quick back-of-the-envelope calculation for CNN.

But had all of the worker’s overtime been exempt, he would have been able to deduct $1,650.

Here’s what else you should know

Single workers will be able to deduct up to $12,500 of eligible overtime compensation, while married workers can deduct double that amount. The provision, which is in effect from 2025 through 2028, applies to single filers earning up to $150,000, when it starts to phase out. Those earning above $275,000 no longer qualify. For married couples, the thresholds are twice those amounts. Taxpayers don’t have to itemize to take the deduction.

Only about 9% of taxpayers will qualify for the benefit, according to Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center.

Most of them will be middle- or upper-middle-income folks since those lower on the income ladder don’t earn enough to owe sufficient tax to benefit from the deduction, while high earners aren’t eligible. Overall, some 85% of the benefit will go to those earning between $100,000 and $500,000, he said.

“Relatively well-paid manufacturing workers are probably the people who are going to do the best,” he noted, as an example.

Those who are eligible will receive a roughly $1,400 tax cut, on average, according to the Tax Policy Center. Employees must typically receive overtime – a guardrail to prevent workers from trying to recharacterize their wages to escape tax.

In addition, workers will still owe payroll taxes for Social Security and Medicare on their overtime compensation, which may also be subject to state and local taxes depending on where they live, said Andy Phillips, vice president of H&R Block’s Tax Institute. (States must decide whether to exempt overtime pay from state taxes.)

Employers will also have to figure out how to inform their workers of the amount of overtime they’ve earned since that figure is not currently reported on W2 tax forms. The Internal Revenue Service announced it will not change the W2 form for the current tax year, which means employers may provide the information in a separate statement or note it in a general box on the form. It’s not clear whether employers will report a worker’s total overtime compensation or only the amount eligible for the deduction.

The IRS still has to write the regulations that will provide important details to employers, workers and tax professionals about exactly who is eligible, what overtime compensation qualifies and how it is reported. The tax filing season typically starts in January.

“Inevitably, there’s going to be a lot of confusion because (Congress) made the effective date 2025 and because the IRS, frankly, doesn’t have the resources to write the regulations in time,” Gleckman said.

Asked for comment, the IRS pointed to a fact sheet on its website.

“The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements,” according to the fact sheet.

This article has been updated with additional information.

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