Congress gives overtime workers a tax break—but only until 2029
H.R. 561 — Overtime Pay Tax Relief Act of 2025 · Filed by Don Bacon (R-NE) · Introduced Jan 20, 2025 · Referred to committee
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What it does
This bill creates a new federal income tax deduction for overtime pay. Workers earning overtime under the Fair Labor Standards Act can deduct up to 20% of their regular wages from that employer as overtime compensation, but only if their adjusted gross income stays below $100,000–$200,000 (depending on filing status). The deduction expires December 31, 2029.
Why we flagged it
The bill's sole operative mechanism is a targeted income tax deduction for overtime compensation, capped by income level and expiring in 2029. It is a straightforward tax relief measure for a specific class of wage earners.
What the text implies
- The 20% cap on deductible overtime means workers cannot deduct all overtime pay—only up to one-fifth of their regular wages from the same employer. A worker earning $50,000 in regular wages and $15,000 in overtime can only deduct $10,000 (20% of $50,000), leaving $5,000 of overtime income taxable.
- The deduction is available to non-itemizers (standard deduction filers) and is not subject to the 2% floor or overall limitation that applies to miscellaneous itemized deductions, making it more valuable than similar deductions for higher-income filers.
The full analysis lists 4 implications of this text.
Who stands to gain
wage earners in overtime-eligible occupations; workers earning $50,000–$200,000 annually