Congress moves to exempt overtime pay from federal income tax
S. 1046 — No Tax On Overtime Act of 2025 · Filed by Josh Hawley (R-MO) · Introduced Mar 13, 2025 · Referred to committee
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What it does
This bill amends the federal tax code to exclude overtime pay from taxable income. Workers who earn overtime compensation under the Fair Labor Standards Act would no longer owe federal income tax on those overtime earnings, effectively giving them a tax break on hours worked beyond the standard 40-hour week.
Why we flagged it
The bill's sole operative mechanism is a tax exclusion — it removes a category of income (overtime compensation) from the federal tax base. This is straightforward tax relief targeted at workers earning overtime under the FLSA.
What the text implies
- The exclusion applies only to overtime 'required under section 7 of the Fair Labor Standards Act' — voluntary overtime or overtime in non-FLSA-covered sectors may not qualify, creating potential disputes over eligibility.
- Revenue cost to the federal government is not quantified in the bill; the fiscal impact depends on how many workers claim overtime and at what income levels, which could be substantial if widely used.
The full analysis lists 4 implications of this text.
Who stands to gain
hourly and salaried workers earning overtime compensation