Sponsor
Donald J. Bacon
Representative · R-NE
Representative · R-NE
The bill raises take-home pay for many overtime-earning lower- and middle-income workers through withholding changes and a limited deduction, but does so at a fiscal cost with a temporary sunset that creates uncertainty and imposes administrative burdens on employers and the IRS.
Overtime-earning middle- and lower-income workers (those receiving FLSA time-and-a-half) see increased take-home pay sooner because employers will update withholding after Treasury guidance so less tax is withheld from overtime wages.
Middle- and lower-income workers can lower their federal taxable income at filing by deducting up to 20% of other wages from the same employer (while the provision is active), reducing annual tax liability for those who receive overtime.
The deduction has a phaseout for higher earners (above roughly $100k–$200k AGI), so higher-income workers get no benefit while the measure still reduces federal revenue, potentially crowding out other programs or increasing deficits.
The provision is temporary (sunsets at the end of 2029), creating uncertainty for household budgeting and complicating tax planning for workers who rely on overtime pay.
Employers and the IRS/Treasury face added administrative and compliance costs to update payroll systems and withholding procedures to implement the new deduction and withholding rules.
Based on analysis of 2 sections of legislative text.
Creates a temporary above-the-line deduction allowing eligible workers to deduct up to 20% of overtime pay (phased out by AGI), effective after enactment and expiring Dec 31, 2029.
Official title: To amend the Internal Revenue Code of 1986 to establish a deduction for certain overtime payments.
Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025
Creates a temporary above-the-line tax deduction that lets workers deduct up to 20% of their overtime pay from the same employer against gross income, subject to income phaseouts and a 2029 expiration. The law defines overtime consistent with the Fair Labor Standards Act, applies the change to non-itemizers, excludes it from certain deduction floors and limits, and requires Treasury to update withholding rules so paychecks can reflect the deduction. The deduction is phased out for higher earners (AGI thresholds: $200,000 joint, $150,000 head of household, $100,000 single) and is unavailable for overtime paid after December 31, 2029; the change applies to amounts received after enactment.