Hey {{first_name|there}} issue three.

Last week we found $8,278 in a box printed on your own credit card statement. This week's money is in a line on your tax return, and the reason most people miss it is that the law was sold to them under a name that isn't quite true.

T H E   L E S S O N

You have probably heard that overtime is now tax-free. Millions of people heard it. It is not what the law says.

There is a real deduction, it is worth real money, and almost everyone describing it has the size wrong.

Here's the mechanic. When you work overtime under federal law, you get paid time and a half. Say your regular rate is $20 an hour. Your overtime hour pays $30. That $30 splits into two pieces:

Only the $10 qualifies for the deduction. The other $20 is ordinary taxable wages, same as always. The deduction covers the premium half, not the whole overtime payment (IRS Fact Sheet FS-2026-13, August 6, 2026).

So if you worked 200 overtime hours last year at that rate, you didn't earn a $6,000 deduction. You earned a $2,000 one.

Why the confusion exists. The policy got branded "no tax on overtime," which is the kind of phrase that survives a news cycle. The statute is narrower than the slogan, and the IRS spent August publishing worked examples because so many people had the math wrong.

What the caps actually are. The overtime deduction maxes out at $12,500 if you file single and $25,000 if you file jointly. The separate tips deduction maxes out at $25,000. Both run for tax years 2025 through 2028, and both are above-the-line, meaning you do not have to itemize to take them. Both phase out once income climbs past $150,000 single or $300,000 joint (IRS Notice 2025-69).

Three limits that matter more than the caps. First, it has to be genuine federal overtime non-exempt work, actual overtime under the Fair Labor Standards Act. If your employer, union contract, or state law pays you overtime beyond what federal law requires, that extra portion does not qualify.

Second, tips work differently in one important way: the deduction covers cash tips, card tips, and tips from a pool, but not mandatory service charges. An automatic 18% added to a large table is not a tip in the eyes of the statute. And the IRS has published the official list of qualifying occupations, so this is checkable rather than a guess.

Third, and this is the one that will bite people: starting with 2026 wages, you can only claim what your employer reports. Overtime now goes in a specific spot on your W-2 Box 12, Code TT. If your employer under-reports it and won't issue a corrected W-2, you are stuck with the smaller number. Watch that box in January.

What still gets taxed, because the name really is misleading. These deductions reduce your federal income tax. They do nothing to Social Security and Medicare FICA comes out of every dollar of tips and overtime exactly as before. Most states tax it too. "No tax on tips" was never no tax.

Now the part that's actual money. Both deductions applied to tax year 2025 the return you already filed this spring. But 2025 W-2s weren't built to report tips and overtime separately yet, so the IRS issued transition relief and a lot of returns went out without the deduction claimed.

If yours was one of them, you can amend. Form 1040-X plus Schedule 1-A, and you generally have three years from when you filed for most on-time 2025 filers that's April 15, 2029. That is not a closing window you need to panic about. It is a real refund sitting there, and nobody is going to mail it to you unprompted.

T H I S   W E E K   I N   M O N E Y

The national average hit $4.10 a gallon on Wednesday, which AAA says is the highest it has ever been on this date, above the summer-2022 peak people still talk about. A year ago it was $3.13, so we're up about 31%. Texas is at $3.64, roughly 46 cents under the national number (AAA).

A federal appeals court cleared the way in July, and roughly 170,000 borrowers had about $11 billion wiped this month, bringing the long-running Sweet class action to about $23 billion for nearly 500,000 people. Nobody in the class has to apply (USA Today).

Work requirements were expanded to cover adults ages 55 to 64, who were previously exempt, and parents whose youngest child is 14 or older. Homeless people, veterans, and former foster youth lost automatic exemptions too (NPR).

The Federal Reserve's own researchers estimate 2025's tariffs raised core goods prices by 3.1% through February essentially all of the excess inflation in goods (Federal Reserve). In the latest inflation report, clothing is up 3.9% and toys 4.0% over the year (Bureau of Labor Statistics). Outside estimates of the household cost run around $1,100 a year, though those figures are projections rather than measurements.

T W O   T H I N G S   T O   D O   T H I S   W E E K

Both free. Both under an hour.

T O O L   O F   T H E   W E E K

Free, official, and the fastest way to find out whether your paycheck is having the right amount taken out. It matters more than usual this year: if a chunk of your income is tips or overtime, the old rules of thumb about withholding no longer describe your actual tax bill.

Over-withholding means you loaned the government money interest-free all year. Under-withholding means a bill in April you didn't plan for. Neither is a moral failing both are just a form nobody ever explained.

Two things to know. Have a recent paystub and last year's return in front of you or the estimate will be junk. And it produces a suggested W-4, not a filing you still have to hand that W-4 to your employer for anything to change.

Last week's money was hiding in boring fine print. This week's is hiding behind a slogan.

That's most of it, honestly. The information isn't locked away it's just wrapped in language designed to be repeated rather than understood, and "no tax on overtime" travels a lot faster than "a deduction on the FLSA premium portion of qualified overtime compensation."

See you next Friday.

— Mega
Bloomingvine Finance · @bloomingvine25

P.S. — If overtime is what makes your budget work, that's worth sitting with for a second. It means your margin depends on your body holding up. The deduction above is nice; it does nothing the month you can't pick up the shifts. That's the gap I actually help people close, and most have never had anyone explain how income protection or living benefits work in plain terms. Reply to this email and I'll walk you through it, or run the calculator above first. No pitch attached either way.