H.R. 1 (OBBBA) “No Tax on Overtime” – No Changes to HRMS for 2025
H.R. 1, signed into law on July 4, 2025, as Public Law 119-21 included a provision that has been referred to as “no tax on overtime”. For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual. While this may eventually benefit some employees, Washington State general government will not be implementing any changes in HRMS for 2025. Significant system changes would be required but cannot be made yet due to uncertainties that cannot be resolved for this tax year.
What does this mean for employees?
The qualified overtime will not be reported on IRS Form W-2 for 2025.
If eligible, employees may still claim the tax deduction individually when filing their 2025 tax return, dependent on IRS rules and guidance.
No action is needed from employees at this time.
What the state is doing next
The Office of Financial Management is working with partner agencies to:
Analyze how Washington’s overtime rules may be treated under federal law
Monitor IRS guidance and finalize reporting requirements
Plan HRMS changes to track qualifying overtime separately
Prepare for implementation in future tax years (2026–2028)
Our commitment
We want to ensure that any implementation:
Is accurate and compliant with federal law
Supports consistent application across all employee groups
We will continue to monitor developments and share updates when more information becomes available.
For more information on IRS guidance for individual taxpayers, please select the link below:
