Keep Every Extra Penny Act of 2025 (HR-405)

Bill Summary

Summary

Excludes overtime pay required by the Fair Labor Standards Act from federal gross income for income tax purposes. The change applies to overtime amounts received after the law is enacted and reduces taxable income for employees who receive FLSA overtime pay.

Key Points

Overtime pay required by the FLSA is excluded from federal gross income for income tax purposes.
The exclusion applies to overtime amounts received after the law's enactment.
The change is implemented by adding a new section to the Internal Revenue Code.
Payroll taxes (Social Security/Medicare) are not changed by this provision unless separately amended.
Employers and the IRS will need guidance on wage reporting and W-2 treatment.
The exclusion will reduce federal income tax revenue to the extent overtime pay is excluded.
No new federal spending programs or appropriations are created.
The provision is narrow and targets overtime-eligible employees rather than broad tax reform.

Pros & Cons

The bill raises take‑home pay for overtime earners by excluding overtime from taxable income, but does so at the cost of lower federal revenue and added implementation and compliance burdens.

Potential Benefits

1

Workers who earn overtime (including middle‑class and lower‑income taxpayers): overtime pay would be excluded from federal gross income, reducing their federal income tax liability and effectively increasing take‑home pay without changing hourly wages.

Potential Drawbacks

2

All taxpayers: excluding overtime pay from taxable income will reduce federal income tax revenue, which could increase the deficit or require spending cuts or offsets in other programs.
Employers and the IRS (and thus taxpayers indirectly): payroll, withholding, and tax‑reporting systems will need updates to implement the exclusion, imposing one‑time and ongoing compliance costs.

AI Insights

Analyzed 2 of 2 sections

Categories & Tags

Agencies

Department of the Treasury (internal revenue administration implied)

Subjects

Procedural Corrections

Individual Income Tax

Tax Credits & Deductions

IRS Administration

Affected Groups

Middle-Class Families

Low-Income Individuals

Small Business Owners

State Governments

+1 more

Keep Every Extra Penny Act of 2025

Bill Summary

Summary

Key Points

Pros & Cons

Potential Benefits

Potential Drawbacks

AI Insights

Categories & Tags

Sponsors (2)

Sponsors (2)

Bill Summary

Summary

Key Points

Pros & Cons

Potential Benefits

Potential Drawbacks

AI Insights

Categories & Tags

Keep Every Extra Penny Act of 2025