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 exclusion may create administrative complexity for employers and the IRS in tracking and reporting overtime compensation separately from regular wages on W-2 forms.
- Workers in states with state income tax would still owe state tax on overtime unless those states independently adopt similar exclusions, creating a patchwork benefit.
Section numbers refer to the bill text the analysis read — linked under Primary records below.
Who it affects
Hourly and lower-wage workers who regularly work overtime would see a direct reduction in federal income tax liability on those earnings, increasing take-home pay. The benefit flows directly to workers, not intermediaries, and has no offsetting public cost identified in the bill.
Who stands to gain
- hourly and salaried workers earning overtime compensation
Named in the bill
Internal Revenue Code of 1986, Fair Labor Standards Act of 1938, Section 7 FLSA, IRC Part III Subchapter B Chapter 1, Section 139J (new)
Where it stands
- Mar 13, 2025 — Introduced · Congress.gov: “Introduced in Senate”
- Mar 13, 2025 — Referred to Senate Committee on Finance · Congress.gov: “Read twice and referred to the Committee on Finance”
Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.
How this was measured
Analysis — Quorum's AI read the bill text published by Congress.gov (794 characters) on May 21, 2026. Section numbers in the findings refer to that text, linked below; transparency and hidden-provision scores are compared against the median of 16,222 analysed bills.
Status and sponsors — Congress.gov's bill record — actions, committee referrals and cosponsors — loaded nightly. The timeline shows status changes, not every procedural action.
As of — page rendered 2026-10-20.
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