No Tax on Overtime for All Workers Act

Key Points

• This bill would let workers deduct their overtime pay from their taxable income, meaning they would not owe federal income tax on money earned during extra hours. It amends the Internal Revenue Code to create a new definition of qualified overtime compensation.
• The bill covers standard hourly workers who earn overtime under federal labor law (the Fair Labor Standards Act), which typically means time-and-a-half pay for hours worked beyond 40 in a week.
• Workers with union contracts or other employment agreements that define overtime as anything beyond 40 hours in a 7-day period would also qualify, even if they are not covered by the Fair Labor Standards Act.
• Special rules are included for flight crews, railroad workers, and other employees covered by the Railway Labor Act, whose schedules do not follow a standard 40-hour workweek.
• The tax break would apply retroactively to overtime earned starting in 2025, meaning workers who already worked overtime could see lower tax bills or bigger refunds when they file.
• The bill was introduced by Sen. Justice and referred to the Senate Finance Committee. It would need to pass both chambers and be signed into law before taking effect.