Congress gives overtime workers a tax break—but leaves gig workers out
S. 1606 — Overtime Wages Tax Relief Act · Filed by Roger Marshall (R-KS) · 3 cosponsors · Introduced May 6, 2025 · Referred to committee
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What it does
This bill creates a new federal income tax deduction for overtime wages. Workers earning overtime pay can deduct up to $10,000 (or $20,000 on joint returns) from their taxable income each year, reducing their federal tax liability. The deduction phases out for higher earners (starting at $100,000 modified AGI for individuals, $200,000 for joint filers), and applies only to overtime compensation as defined by the Fair Labor Standards Act or qualifying collective bargaining agreements.
Why we flagged it
The bill's sole operative mechanism is a new federal income tax deduction targeted at workers earning overtime compensation. It is a straightforward tax expenditure (revenue reduction) with no regulatory, subsidy, or immunity components.
What the text implies
- The deduction applies only to overtime meeting FLSA or collective bargaining standards, potentially excluding gig workers, independent contractors, and workers in non-covered sectors (e.g., certain agricultural, domestic, or executive roles).
- Phaseout structure (reducing $50 per $1,000 over threshold) creates a marginal tax-rate cliff for workers near the income threshold, potentially discouraging overtime work or income growth in that band.
The full analysis lists 4 implications of this text.
Who stands to gain
W-2 employees earning overtime compensation; Workers in industries with high overtime prevalence (manufacturing, transportation, healthcare, cons