S 1606119th CongressIn Committee

Overtime Wages Tax Relief Act

Introduced: May 6, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Overtime Wages Tax Relief Act would create a new above-the-line deduction for overtime pay. An individual could deduct up to $10,000 of overtime compensation for a single filer or up to $20,000 for a joint return in a given tax year. The deduction would be phased out as modified adjusted gross income (MAGI) rises, starting at $100,000 for individuals ($200,000 for joint filers) and reduced by $50 for each $1,000 (or fraction) that MAGI exceeds the threshold. “Overtime compensation” is pay at least 1.5 times the regular rate for work beyond a maximum number of hours set by the Fair Labor Standards Act or by certain collective bargaining or pre-work agreements. The bill would also make this deduction available to non-itemizers, adjust how it interacts with itemized deductions, require reporting of overtime on tax forms, and adjust withholding tables. The changes would apply to tax years beginning after December 31, 2025.

Key Points

1The bill creates a new Section 224, allowing a deduction equal to the portion of overtime pay up to $10,000 ($20,000 for joint returns) for the taxable year.
2The deduction is reduced as MAGI rises: $50 for each $1,000 (or fraction) by which MAGI exceeds $100,000 ($200,000 for joint returns), with the reduction not allowing the deduction to drop below zero. MAGI includes regular AGI plus certain excluded income (from sections 911, 931, or 933).
3Overtime compensation must meet two tests: (1) paid at at least 1.5 times the regular rate, and (2) for work beyond a maximum number of hours for a period of time as required by either the Fair Labor Standards Act section 7 or by a qualifying agreement (such as a collective bargaining agreement or a pre-work agreement) that sets a minimum of 40 hours for a 7-day period.
4Administrative and policy changes: the deduction would be available to non-itemizers (not just those who itemize deductions), not treated as a miscellaneous itemized deduction, not limited by the overall itemized deduction cap, and would be reflected in wage withholding and reporting. Specifically, Form 6051 reporting would include the total amount of overtime compensation, and withholding tables would be adjusted to reflect the deduction.
5Effective date: the new rules apply to tax years beginning after December 31, 2025 (i.e., starting in 2026 for calendar-year filers).

Impact Areas

Primary group/area affected: workers who receive overtime pay that meets the defined criteria, especially those who regularly work overtime and have MAGI around the phase-out thresholds. These taxpayers could reduce their taxable income by the deduction, subject to the caps and phase-out.Secondary group/area affected: employers and payroll services who would need to administer the new deduction, adjust withholding tables, and report overtime amounts on Form 6051.Additional impacts:- High-earning taxpayers who exceed MAGI thresholds may see a smaller or no deduction due to the phase-out.- Tax system administration would require guidance and regulations to implement the new definition of overtime, reporting, and withholding adjustments.- The proposal could influence employer overtime practices if workers perceive a tax incentive to work overtime, though the effect would depend on overall compensation, tax rates, and the magnitude of the deduction.

Generated by gpt-5-nano on Nov 18, 2025