Overtime pay would become tax-free under House bill HR 5475

What does this do?

HR 5475 would allow workers to subtract overtime pay from their federally taxable income, so hours worked beyond 40 per week would no longer be counted as taxable wages. The bill covers overtime required under the Fair Labor Standards Act as well as overtime arranged through employer or union agreements made before the extra work was performed. It would take effect starting with the 2025 tax year, meaning workers would first see the benefit when filing taxes in early 2026.

Who does it affect?

The bill applies to anyone who receives overtime pay under the Fair Labor Standards Act, including hourly workers and certain contracted employees. Workers in industries such as manufacturing, healthcare, transportation, and construction are identified as those most likely to be affected, along with airline and railroad workers whose overtime is calculated under union contracts.

Why does it matter?

Because overtime income would no longer be counted as taxable, workers who regularly log extra hours would owe less in federal income taxes. The federal government would collect less tax revenue as a result, since a portion of workers' income would be removed from the taxable base.

What does it cost, and who pays?

• Federal tax revenue would decrease
• Overtime income removed from tax base