{"id":1247,"date":"2025-06-10T23:03:46","date_gmt":"2025-06-10T23:03:46","guid":{"rendered":"https:\/\/finzexpert.com\/blog\/trumps-pledge-to-not-tax-overtime-could-become-federal-law\/"},"modified":"2025-06-10T23:03:46","modified_gmt":"2025-06-10T23:03:46","slug":"trumps-pledge-to-not-tax-overtime-could-become-federal-law","status":"publish","type":"post","link":"https:\/\/finzexpert.com\/blog\/trumps-pledge-to-not-tax-overtime-could-become-federal-law\/","title":{"rendered":"Trump\u2019s Pledge to Not Tax Overtime Could Become Federal Law"},"content":{"rendered":"\n<div data-testid=\"companionColumn-0\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">When President Trump first floated the idea of \u201cno tax on overtime\u201d at a campaign rally last year, he did not elaborate on how it would work. Could anyone who works more than 40 hours a week claim a tax break? Would overtime pay really be completely tax-free?<\/p>\n<p class=\"css-at9mc1 evys1bk0\">The answer to both questions, as it turns out, is no.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Under the sprawling domestic policy bill that Republicans pushed through the House and are preparing to steer through the Senate, the tax break would be limited. It would be available only to Americans who, under federal law, must be paid at a time-and-a-half rate for working any time exceeding 40 hours in a week. That\u2019s a broad group that includes almost all Americans who are paid an hourly wage, but many salaried workers would not be eligible.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">And the tax relief would not be total. Americans would still owe payroll taxes, and potentially state income taxes, on their overtime pay. Federal income taxes would be eliminated on those wages, but only on the earnings attributable to the 50-percent bump in pay \u2014 only a third of the money made while working overtime.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Even with those limitations, both critics and supporters of the idea believe the tax break could reshape the American labor market. The White House Council of Economic Advisers expects that the policy will motivate Americans to work more and help strengthen the economy.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-1\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Skeptics think the change would primarily drive people to reclassify their earnings or even change jobs in order to file for overtime. They worry that if enough people sought jobs that offer overtime, wages in those positions could eventually fall.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cUltimately, it\u2019s going to create unintended consequences that incentivize certain behaviors in the labor market and thus create winners and losers from that,\u201d said Emmet Bowling, a labor policy analyst at the American Action Forum, a conservative think tank. \u201cHourly jobs might become more desirable because of this tax deduction.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Tax experts give the policy mixed reviews because it treats people in jobs that easily allow overtime differently from those with jobs that do not. Some occupations, like teaching, don\u2019t qualify for overtime pay under federal law, while in other cases, people could work more than 40 hours a week in multiple jobs and not receive the tax break.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-2\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Even for occupations in which overtime pay is possible, employees may not be able to control their work schedules and decide for themselves to work overtime. The requirement that overtime hours receive premium pay already discourages companies from asking their employees to work more than 40 hours a week.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-3\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Alex Brill, a senior fellow at the conservative American Enterprise Institute, said the tax cut could help lure people to work more hours, and therefore help companies become more productive. But employers would still need to allow it.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cIf you\u2019re on a factory floor, not everyone can say, \u2018Hey give me overtime,\u2019 and then everyone is fighting over who gets to operate the machinery,\u201d he said. \u201cThe schedule needs to be managed.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Overall, the tax cut would be most valuable for people who could easily set their own schedules, meaning it might ultimately favor white-collar workers. A pair of economists studying a tax exemption for overtime pay in France found that the policy did not affect hours worked overall. Instead, they found that the policy, a version of which was in place from 2007 to 2012, primarily allowed people with flexible schedules to declare more overtime hours.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cThese results suggest that the upshot of the de-taxation of overtime hours has essentially been tax optimization, with no real impact on the length of time worked,\u201d wrote the study\u2019s authors, Pierre Cahuc and St\u00e9phane Carcillo. In an interview, Mr. Cahuc said it was too easy for some people to manipulate their schedules to save on taxes, and called the policy a \u201cbad idea.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cAlmost no country has this type of policy,\u201d he said, \u201cbecause it doesn\u2019t make much sense.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">The Republican plan would bar people making more than $160,000 a year from claiming the tax break. That limit, which would increase over time, has allayed fears that rich, sophisticated taxpayers could abuse the policy and blow a giant hole in the budget. The provision would still be relatively expensive; the nonpartisan Joint Committee on Taxation estimated the cost at $124 billion for just four years of the tax break.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-4\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">That could weigh on the tax cut\u2019s future. Alabama experimented with a state income tax exemption for overtime pay, but Republicans there decided to let the policy lapse after 18 months because it ended up costing much more than expected.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">In the bill Republicans recently pushed through the House, they scheduled the federal version of the overtime tax cut to last through 2028. The expiration would coincide with the end of several other temporary tax cuts in the bill, including the provision on tipped income, setting up Congress for another battle over tax cuts in a few years.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">While analysts quibble with how the overtime exemption could affect the labor market and tax compliance, Republicans have called the policy a reward for hard-working Americans.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">As the Ways and Means Committee debated the bill last month, Representative Jason Smith, Republican of Missouri and the chairman of the tax-writing panel, gave the example of a constituent who earned roughly $75,000 and worked about 300 hours of overtime a year, who would stand to receive a $1,320 tax cut should the provision become law.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cThat is real tax relief for one of the hardest-working people that I know,\u201d Mr. Smith said, \u201cand there are millions and millions of workers like him across the country.\u201d<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-5\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">Democrats have lined up against the Republican bill this year, but they may eventually find it hard to oppose continuing the policy. In Alabama, Democrats have led the charge to try to keep the overtime exemption in place.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">\u201cHow do you justify opposing something that\u2019s going to help working-class people?\u201d said Anthony Daniels, the Democratic leader in the state\u2019s House of Representatives.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n","protected":false},"excerpt":{"rendered":"<p>When President Trump first floated the idea of \u201cno tax on overtime\u201d at a campaign rally last year, he did not elaborate on how it would work. Could anyone who works more than 40 hours a week claim a tax break? Would overtime pay really be completely tax-free? The answer to both questions, as it [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":1248,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[8],"tags":[328,202,1012,1011,466,380],"class_list":["post-1247","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-loan","tag-federal","tag-law","tag-overtime","tag-pledge","tag-tax","tag-trumps"],"_links":{"self":[{"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/posts\/1247","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/comments?post=1247"}],"version-history":[{"count":0,"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/posts\/1247\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/media\/1248"}],"wp:attachment":[{"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/media?parent=1247"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/categories?post=1247"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finzexpert.com\/blog\/wp-json\/wp\/v2\/tags?post=1247"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}