No Tax on Overtime Act would create a new above-the-line deduction for “qualified overtime compensation.” The deduction would equal the amount of overtime pay that an individual receives under the Fair Labor Standards Act (FLSA) section 7, defined as overtime paid over the regular rate, but it would be limited by a 300-hour equivalent cap. The deduction would phase out for higher earners based on modified adjusted gross income (MAGI), with a threshold of $100,000 for single filers ($200,000 for joint filers). The bill also requires the worker’s Social Security number to be included on the tax return, would require employers to report this overtime on W-2 forms, and would adjust withholding to reflect the deduction. It applies to taxable years beginning after December 31, 2024. In short, the bill would allow many workers who earn overtime to reduce their taxable income by an amount tied to their overtime pay, subject to an hours cap and income-based phaseout, while imposing reporting and administrative changes for accuracy and enforcement.
Key Points
- 1New deduction: A deduction equal to the taxpayer’s qualified overtime compensation (overtime under FLSA §7 above the regular rate).
- 2Hours cap: The deduction is limited to the portion of qualified overtime compensation related to up to 300 hours of overtime in the year.
- 3MAGI phaseout: The deduction is reduced by $100 for every $1,000 by which a taxpayer’s modified adjusted gross income exceeds $100,000 ($200,000 for joint returns).
- 4Definition and reporting: “Qualified overtime compensation” is overtime pay under FLSA §7 above the regular rate; the deduction requires the employee’s Social Security number on the tax return.
- 5Non-itemizers and withholding: The deduction is available to non-itemizers (i.e., it appears as an above-the-line deduction); payroll withholding and W-2 reporting would be updated to reflect the deduction, ensuring proper tax collection and reporting.