S-4310-119
Read twice and referred to the Committee on Finance.
Sponsored by James Justice (R-WV)
What it does
This bill would exempt overtime pay — wages earned beyond 40 hours per week under the Fair Labor Standards Act — from federal income taxation. Workers would still receive their overtime wages, but those earnings would not be counted as taxable income for federal purposes. The bill's title indicates it is intended to apply to "all workers," suggesting broad rather than income-capped eligibility.
Who benefits
Hourly and salaried workers who regularly work overtime, particularly in industries such as manufacturing, construction, healthcare, transportation, and retail. Lower- and middle-income workers who rely on overtime as a significant share of total earnings would see the largest proportional benefit. Workers in states with no state income tax would capture the full federal benefit. Employers may benefit indirectly if the tax exemption incentivizes workers to accept or seek overtime shifts, easing labor shortages.
Who is hurt
The federal government would lose income tax revenue on overtime wages, which could reduce funding available for federal programs or require offsetting tax increases or spending cuts elsewhere. Higher-income workers who earn overtime would receive a larger absolute dollar benefit, which critics may view as regressive in design. Workers who do not work overtime — including part-time workers, gig workers, and those in salaried exempt positions — would receive no benefit. Salaried workers classified as exempt from overtime rules under the FLSA would also be excluded.
Supporters argue
Supporters argue that overtime pay represents extra effort and sacrifice by workers who already paid taxes on their base wages, and that exempting it rewards hard work while putting more money directly in workers' paychecks. They contend that millions of hourly workers — particularly in manufacturing, healthcare, and logistics — depend on overtime income to cover basic expenses, and that a tax exemption would meaningfully increase their take-home pay without requiring employers to raise base wages. They also argue the policy could incentivize labor force participation and reduce worker shortages in critical industries.
Opponents argue
Opponents argue that the exemption would disproportionately benefit higher-earning workers who work the most overtime, while providing nothing to part-time workers, gig workers, and others who cannot access overtime — groups that are often lower-income. They contend the bill would reduce federal revenue by a potentially significant amount, adding to the deficit or requiring cuts to other programs, without a targeted mechanism to direct benefits to the workers most in need. They also argue that employers could restructure compensation to reclassify regular wages as overtime to exploit the exemption, eroding the tax base further.