New Tax Break for Overtime Pay Doesn't Protect Social Security Benefits from Earnings Test
A new federal tax deduction aimed at reducing taxes on overtime pay does not shield retirees' Social Security benefits from the annual earnings test. The "no tax on overtime" provision, part of Public Law 119-21 (One Big Beautiful Bill Act), allows a temporary deduction for qualified premium pay through 2028 but only applies to federal taxable income—not wages used by Social Security in its calculations. Social Security's earnings limit for 2026 is $24,480. Any amount over this threshold results in the agency withholding $1 of benefits for every $2 earned above it. This calculation uses total wages, not adjusted gross income or taxable income after deductions. As a result, retirees who work overtime—especially those collecting early Social Security at age 62—are still subject to benefit reductions if their overall earnings exceed the limit. Financial professionals warn that workers should separately calculate both regular and overtime pay against the annual earnings cap before accepting additional hours during peak seasons like wildfire mitigation. The tax break, while beneficial for reducing federal taxes, does not mitigate Social Security's withholding rules.
