How the "Big Beautiful Bill" Might Affect Nurse Overtime Pay

The "Big Beautiful Bill" (BBB) is set to become law soon, bringing changes to how overtime for nurses is taxed, specifically for 2025 through the end of 2028. You could be looking at tax savings, but be ready for some disappointment if you were expecting ALL overtime to be tax free.

Key Point: The "no tax on overtime" part is a bit misleading. It only applies to the difference between your normal hourly pay and your overtime rate.

Here's an example:

• If your normal pay is $50/hour and your overtime rate is $75/hour, the $25/hour difference is tax-free (if you qualify).

• If you work 8 hours of overtime, that's $200 in tax-free income (8 hours x $25/hour). You'll still earn $600 from that overtime, but only a portion is federally tax-free. State taxes still apply.

For Single Filers:

• Your Modified Adjusted Gross Income (MAGI) must be $150,000 or less.

  • What's MAGI? Think of it as your total income minus pre-tax contributions to things like your 401k, 403b, or Health Savings Accounts (HSAs).

• If you qualify, you can deduct up to $12,500.

  • What's a deduction? It reduces the amount of your income that's taxed, so it doesn't directly lower your tax bill by $12,500.

Example of Tax Savings:

• A nurse earning $140,900 who contributes $23,500 to a pre-tax 401k would need 500 hours of overtime to reach the $12,500 deduction ($12,500 / $25 per hour tax-free difference).

• This could lead to an estimated $2,750 in Federal tax savings.

Important Note: The IRS hasn't released final guidance on the BBB. It's likely your paychecks won't immediately reflect this change in 2025. Be sure to discuss it with your tax professional when you file your taxes.

• Generally, the income and deduction limits double.

• If you're Married Filing Jointly, your income can be up to $300,000, and you can deduct up to $25,000 of qualified overtime.

Don't worry, you might still qualify for a partial deduction!

• Your deduction will be reduced by $100 for every $1,000 your MAGI is above the limit.

• Example (Single Filer): If your MAGI is $200,000 (which is $50,000 over the $150,000 limit), your deduction would be reduced by $5,000 (50 x $100). This means your maximum deduction would drop from $12,500 to $7,500.

If you're just above the income limits, these strategies can help you qualify for more of the deduction:

1. Pre-tax 401k and 403b Contributions:

   • For 2025, you can contribute up to $23,500.

   • If you're over 50, you can contribute an additional $7,500 (catch-up contribution).

   • Bonus: These contributions also reduce your current taxable income!

   • Extra Bonus (Ages 60-63): You might be able to contribute an additional $3,750 to your 401k or 403b.

2. Health Savings Account (HSA) Contributions:

   • If you have a high-deductible health plan, you can contribute:

     • Up to $4,300 for single filers.

     • Up to $8,550 for family plans.

     • An additional $1,000 if you're over 55 (catch-up contribution).

Combined Potential: If you're between ages 60 and 63, you could potentially reduce your MAGI by $40,050 or more (if married filing jointly) by using these strategies. This can significantly help you qualify for the overtime tax benefits.

• The BBB affects you, but don't expect a full $12,500 tax savings directly.

• Your paychecks probably won't reflect the new law this year, so be sure to work with a tax professional.

• Your 401k, 403b, and HSA contributions can be powerful tools to help you save even more on taxes over the next four years.

You work hard, so don't leave money on the table! You don't need to be a finance expert to do well. When I am in for my physical, things like my blood pressure number is like a foreign language, I don’t understand it, but I have nurses and doctors to tell me what's what. If this stuff feels like that to you it might be worth talking to an expert.

The information in this blog is the opinion of Nathan Tomkiewicz and does not reflect the views of any other person or entity unless specified. The information provided is believed to be  reliable and obtained from reliable sources, but no liability is accepted for inaccuracies. The information provided is for informational purposes and should not be construed as advice. Advisory services offered through Tomkiewicz Wealth Management, LLC, an investment adviser registered with the State of New York.