Sponsors
The bill gives targeted, near-term tax and take-home pay relief to lower- and middle-income overtime workers by creating an above-the-line overtime deduction and adjusting withholding, but the benefit is temporary, excludes higher earners, reduces federal revenue, and imposes administrative costs on employers.
Overtime workers with AGI below the phase-out thresholds can deduct up to 20% of qualifying overtime pay as an above-the-line deduction, lowering taxable income and providing immediate tax relief — including for non-itemizers; benefits are targeted at lower- and middle-income workers.
Directs Treasury to modify withholding so take-home pay can immediately reflect the overtime deduction, simplifying payroll withholding and boosting short-term cash flow for affected workers.
Expanding the deduction reduces federal revenue, which could increase deficits or require spending cuts or future tax increases that affect all taxpayers.
The deduction expires after 2029, so benefits are temporary and create uncertainty for households' long-term tax and financial planning.
Employers, payroll providers, and small businesses may incur administrative and compliance costs to implement withholding changes and track qualifying overtime.
Based on analysis of 2 sections of legislative text.
Adds an above-the-line deduction for qualifying overtime pay (up to 20% of other same-employer wages), phases out by income, and sunsets after Dec 31, 2029.
Introduced January 20, 2025 by Donald J. Bacon · Last progress January 20, 2025
Allows individual taxpayers to claim an above-the-line deduction for qualifying overtime pay from a single employer equal to up to 20% of their other wages from that employer for the year. The deduction is limited by adjusted gross income (phasing out for higher earners), requires changes to withholding rules, is available to non-itemizers, and ends for pay received after December 31, 2029.