Sponsors
The bill gives targeted, near‑term tax and withholding relief to workers who earn overtime—boosting take‑home pay for many middle‑ and lower‑income Americans—at the cost of reduced federal revenue, temporary legal uncertainty, and added employer/IRS implementation burdens.
Middle- and lower-income workers who receive FLSA overtime (time-and-a-half) will see immediate and after‑filing tax relief: withholding will be adjusted to increase take‑home pay once Treasury issues guidance, and workers can deduct up to 20% of other same‑employer wages on their return while the provision is effective.
The deduction’s fiscal cost could reduce federal revenue or increase deficits, and higher‑earning workers (above the $100k–$200k AGI phase‑out) get little or no benefit, concentrating gains among lower earners while creating budgetary tradeoffs.
Because the provision is temporary (sunsets at the end of 2029), workers and households face uncertainty for longer‑term budgeting and tax planning if they come to rely on the extra take‑home pay.
Employers and the IRS/Treasury will incur administrative and compliance costs to update payroll systems and withholding procedures to implement the new deduction and withholding changes.
Based on analysis of 2 sections of legislative text.
Creates a temporary above-the-line deduction allowing individuals to deduct up to 20% of overtime pay (with AGI phaseouts), expiring after Dec 31, 2029.
Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025
Creates a temporary above-the-line tax deduction for overtime pay so workers can reduce their taxable income when they earn overtime. The deduction lets individuals exclude up to 20% of their overtime pay (relative to other wages from the same employer), phases out for higher earners, and expires after December 31, 2029. The bill requires the Treasury to update withholding rules so payroll withholding reflects the new deduction and makes related changes to the tax code so the deduction is available to non-itemizers and not limited by certain itemized deduction floors.