Senate bill would let workers deduct overtime pay from federal taxes

What does this do?

S 4310 would create a new federal income tax deduction specifically for overtime earnings, so workers would not owe federal income tax on wages earned beyond their normal hours. Under current law, overtime wages are taxed the same as regular wages. The deduction would apply to tax years beginning January 1, 2025.

Who does it affect?

The bill covers hourly workers entitled to overtime under federal labor law after 40 hours in a week, as well as workers covered by formal employer agreements such as union contracts. Railroad and airline workers, whose schedules fall under a separate federal law, are specifically included in the second group.

Why does it matter?

Workers who regularly put in overtime hours would retain a larger share of those earnings because federal income tax would no longer apply to that portion of their wages. Payroll taxes for Social Security and Medicare would still be owed on overtime pay, limiting the scope of the tax relief.

Where does it stand?