Railroad workers do not qualify for the new no tax on overtime deduction. The deduction created by the One Big Beautiful Bill Act only applies to overtime required by the Fair Labor Standards Act, and railroad employees are exempt from that law’s overtime rules. Every dollar of overtime a railroad worker earns in 2025 remains fully taxable at the federal level. Bills and a Senate amendment are moving to close this gap, but none had become law at the time of writing.
Why Railroad Workers Are Excluded
The exclusion comes down to how the new deduction defines “qualified overtime compensation.” The statute ties the definition to overtime required by the FLSA. The Department of Labor lists railroad employees as exempt from the FLSA’s overtime provisions.1U.S. Department of Labor. Other FLSA Exemptions Railroads have no legal obligation under the FLSA to pay time-and-a-half after 40 hours. Instead, work schedules are governed by the Hours of Service Act, which limits train and engine crews to 12 consecutive hours on duty followed by at least 10 hours off.2Cornell Law Institute. 49 CFR Appendix A to Part 228 – Requirements of the Hours of Service Act Overtime pay for railroad workers flows from collective bargaining agreements and work assignments, not from the FLSA framework.
So a conductor who works 60 hours in a week and earns a premium rate under a union contract gets no benefit from the new deduction. The premium pay is real overtime by any ordinary meaning of the word, but it is not “qualified overtime compensation” as the tax code now defines it.
What the Deduction Offers Everyone Else
The One Big Beautiful Bill Act was signed into law on July 4, 2025. It created an above-the-line deduction for qualified overtime compensation covering tax years 2025 through 2028, available whether you itemize or take the standard deduction. The deduction applies to the premium portion of overtime pay, not the base rate. If you earn time-and-a-half, the deductible amount is the “half” portion above the regular hourly rate.3Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors
The deduction caps at $12,500 per year for individual filers and $25,000 for married couples filing jointly. It phases out once modified adjusted gross income passes $150,000, or $300,000 for joint filers. Employers report qualifying overtime on the W-2 or 1099 so eligible workers can claim it on their return.3Internal Revenue Service. One, Big, Beautiful Bill Act: Tax Deductions for Working Americans and Seniors Because railroad overtime is not FLSA overtime, none of it flows through to the deduction line, and none of it appears on your W-2 as qualifying compensation.
Bills That Would Cover Railroad Workers
The most immediate effort is Senator Maria Cantwell’s Senate Amendment No. 2613. It would expand the overtime tax deduction to cover railroad workers by defining qualifying overtime based on individual work assignments rather than the FLSA’s 40-hour standard. The Sheet Metal, Air, Rail, and Transportation Workers-Transportation Division (SMART-TD) has been urging members to contact senators in support of the amendment, characterizing the current exclusion as an oversight.
In the House, H.R. 5475, the No Tax on Overtime for All Workers Act, would extend the overtime tax deduction to all workers currently excluded because of how their jobs are classified, including railroad employees and others covered under the Railway Labor Act.4Congress.gov. H.R.5475 – 119th Congress: No Tax on Overtime for All Workers Act On the Senate side, S. 1046, the No Tax on Overtime Act, was introduced by Senator Josh Hawley and referred to the Finance Committee.5Congress.gov. S.1046 – 119th Congress: No Tax On Overtime Act
A separate approach exists in the Railway Worker Tax Fairness Act, introduced in prior congressional sessions. Rather than layering a capped deduction on top of taxable overtime, it would exclude railroad overtime compensation from gross income entirely, removing the $12,500 ceiling. None of these bills had been enacted at the time of writing.
How Railroad Overtime Is Taxed Right Now
Every dollar a railroad worker earns in overtime is included in gross income under current law and taxed at ordinary federal rates. The Internal Revenue Code defines gross income to include all compensation for services, with no carve-out for overtime or for railroad employees.6Office of the Law Revision Counsel. 26 U.S.C. 61 – Gross Income Defined Your employer withholds federal income tax from overtime pay in every pay period, and you report the full amount on your return.
Federal income tax rates for 2026 run from 10 percent to 37 percent across seven brackets.7Internal Revenue Service. Federal Income Tax Rates and Brackets If you file your 2025 return and try to claim the overtime deduction without qualifying, the IRS will disallow it.
Railroad Retirement Taxes Would Still Apply
Even if Congress does pass a federal income tax exemption or deduction for railroad overtime, payroll taxes under the Railroad Retirement Tax Act will almost certainly still apply. Railroad employees pay into their own retirement system instead of Social Security, funded through two tiers of payroll taxes.8Office of the Law Revision Counsel. 26 U.S. Code 3201 – Rate of Tax
For 2026, the rates and wage bases are:
- Tier 1: 6.2 percent on compensation up to $184,500, mirroring the Social Security tax rate. An additional 1.45 percent Medicare tax applies to all compensation with no cap.
- Tier 2: 4.9 percent on compensation up to $137,100, funding additional retirement benefits similar to a private pension.
These rates are published annually by the Railroad Retirement Board.9Railroad Retirement Board. Program Letter 2026-01 The Tier 2 rate of 4.9 percent is determined by a formula in the tax code based on the ratio of Railroad Retirement Account assets to benefits paid.10Office of the Law Revision Counsel. 26 U.S.C. 3241 – Determination of Tier 2 Tax Rate
Every overtime hour triggers both tiers for most of the workforce. A “tax-free overtime” paycheck under any future law would still show railroad retirement deductions. Getting withholding wrong creates problems with the Railroad Retirement Board when you eventually file for your pension, so accurate reporting matters regardless of any income tax change.
Who Would Be Covered If a Bill Passes
Legislative proposals targeting railroad overtime generally define eligible workers by reference to the Railway Labor Act, which governs labor relations across the rail industry.11Office of the Law Revision Counsel. 45 U.S.C. Chapter 8 – Railway Labor Under that law, covered employees include anyone in the service of a carrier who performs work defined by the Surface Transportation Board’s orders. In practice, that includes engineers, conductors, maintenance-of-way workers, signalmen, dispatchers, and most other operating and craft positions. Administrative and corporate staff whose roles don’t involve train operations or track maintenance may not meet the criteria if future legislation limits eligibility to employees performing work subject to the Hours of Service Act or similar operational requirements.
What to Do Now
Nothing has changed for railroad workers under current law. Overtime is fully taxed at the federal level, and the new deduction is off-limits. Two things are worth doing anyway.
Track your overtime hours and premium pay carefully. If Congress passes a fix mid-year or retroactively, clean records will make claiming the benefit straightforward. And contact your congressional representatives. The Cantwell Amendment and the House and Senate bills exist because lawmakers heard directly from railroad workers about the gap. Whether any of them becomes law depends in part on how visible that pressure stays.