Overtime Wages Tax Relief Act

Bill Number

S. 1606

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Taxation

Status

Introduced

Latest Action

2025-05-06: Read twice and referred to the Committee on Finance.

Last Updated

2025-06-06T12:45:47Z

AI-Generated Summary

Purpose

The Overtime Wages Tax Relief Act (S. 1606) aims to provide tax relief to workers by allowing a deduction for qualified overtime pay, reducing their federal income tax liability on earnings from extra hours worked. This encourages overtime labor while targeting benefits primarily to middle- and lower-income earners.

Key Provisions

• Deduction Amount: Taxpayers can deduct up to $10,000 of overtime compensation per year ($20,000 for married couples filing jointly).
• Income Phase-Out: The deduction decreases by $50 for every $1,000 (or portion thereof) that a taxpayer's modified adjusted gross income (AGI plus certain foreign income exclusions) exceeds $100,000 ($200,000 for joint filers), but it cannot go below zero.
• Definition of Overtime Compensation: Overtime is pay at least 1.5 times the regular hourly rate for hours worked beyond limits set by:
• The Fair Labor Standards Act (FLSA) of 1938, which generally requires overtime after 40 hours per week for non-exempt employees; or
• A collective bargaining agreement or pre-work employer-employee agreement specifying at least 40 hours per 7-day period.
• Overtime must be from a single employer.
• Accessibility: The deduction is available whether taxpayers itemize deductions (list specific expenses on their tax return) or take the standard deduction (a flat amount). It is not treated as a miscellaneous itemized deduction (which has restrictions) and is exempt from the overall limit on itemized deductions (2% of AGI floor).
• Reporting and Administration: Employers must report total overtime pay on Form W-2 (wage statements). The Treasury Secretary will update withholding tables (used to estimate taxes from paychecks) to account for the deduction.
• Effective Date: Applies to tax years starting after December 31, 2025.

Significant Changes to Existing Law

• Adds a new Section 224 to the Internal Revenue Code (IRC), creating the overtime deduction as an "above-the-line" adjustment (reducing AGI directly, unlike some deductions).
• Modifies Section 63(b) to include this deduction in the standard deduction calculation for non-itemizers.
• Amends Sections 67(b) and 68(c) to exclude it from miscellaneous deduction limits and the 2% AGI floor, making it more generous than similar tax breaks.
• Updates Section 6051(a) to require overtime reporting on W-2 forms, a new administrative requirement.
• These changes expand tax benefits for wage earners without altering core FLSA overtime rules.

Potential Impacts

• On Citizens: Provides financial relief to hourly workers (e.g., in manufacturing, healthcare, or service industries) who rely on overtime, potentially increasing take-home pay by hundreds to thousands of dollars annually for eligible individuals. Higher-income earners see reduced or no benefits due to phase-out.
• On Government Agencies: The IRS will need to update forms, guidance, and withholding systems, increasing short-term administrative costs. The deduction could reduce federal tax revenue by an estimated amount (not specified in the bill), potentially affecting budget allocations.
• On International Relations: Minimal direct impact, though it indirectly supports U.S. workers in globally competitive industries by lowering their effective tax on overtime.
• Broader Economy: May incentivize employers to offer more overtime and workers to accept it, boosting productivity in labor-intensive sectors, but could strain work-life balance or lead to revenue shortfalls requiring spending cuts or other tax adjustments.

Main Stakeholders Affected

• Workers: Primarily non-exempt hourly employees under FLSA (e.g., blue-collar, service, and some professional workers) who earn overtime; benefits taper off for those with incomes over $100,000.
• Employers: Businesses must track and report overtime separately on W-2s, potentially increasing payroll compliance costs, but may gain from a more willing overtime workforce.
• Taxpayers Generally: Indirectly affects all via reduced government revenue; non-overtime earners (e.g., salaried professionals) do not benefit directly.
• Government Entities: IRS and Treasury Department for implementation; Congress for fiscal policy implications.

Notable Legal, Constitutional, or Political Implications

• Legal: Aligns with IRC structure by creating an above-the-line deduction, avoiding conflicts with existing wage laws like FLSA. Requires Treasury regulations for enforcement, which could clarify ambiguities (e.g., qualifying agreements). No challenges to overtime definitions, as they reference established FLSA standards.
• Constitutional: Falls within Congress's enumerated power to "lay and collect Taxes" under Article I, Section 8, with no apparent free speech, equal protection, or due process issues, as it neutrally targets work-based income.
• Political: Represents a pro-worker tax cut, potentially appealing to labor-focused voters, but could spark debate over revenue loss (estimated at billions over time) and equity (favoring certain industries). As an introduced bill in the 119th Congress, its passage depends on Finance Committee approval and broader tax reform context; failure to offset costs might complicate budget reconciliation.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Marshall, Roger [R-KS]

Cosponsors (3)

Sen. Tuberville, Tommy [R-AL], Sen. Ricketts, Pete [R-NE], Sen. Justice, James C. [R-WV]

Recent Actions

• 2025-05-06: Read twice and referred to the Committee on Finance.
• 2025-05-06: Introduced in Senate

Bill Versions

• Overtime Wages Tax Relief Act — issued 2025-05-06 — PDF (5 pages)