Congress gives overtime workers a federal tax break on extra pay
H.R. 4740 — No Tax on Overtime for All Workers Act · Filed by Emilia Sykes (D-OH) · 1 cosponsor · Introduced Jul 23, 2025 · Referred to committee
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What it does
This bill allows workers to deduct overtime compensation from their taxable income. Specifically, it lets employees exclude from federal income tax any overtime pay they receive above their regular hourly rate — either overtime required by federal law (Fair Labor Standards Act) or overtime paid under a union contract or individual agreement at 1.5× the regular rate for hours over 40 per week.
Why we flagged it
The bill's sole operative mechanism is a tax deduction for overtime compensation paid to employees. It is a straightforward tax relief measure targeting working people, not a regulatory or appropriations instrument.
What the text implies
- The deduction applies retroactively to taxable years beginning after December 31, 2024, meaning workers may claim it on 2025 tax returns and beyond, creating a multi-year revenue cost to the federal government.
- The bill does not cap the deduction or phase it out by income level, so high-earning workers with substantial overtime (e.g., executives, senior professionals) receive the same tax benefit as lower-wage workers.
The full analysis lists 4 implications of this text.
Who stands to gain
individual workers earning overtime compensation