The current status of overtime tax proposals

As of now, there is no federal law eliminating taxes on overtime pay. During the 2024 campaign, Donald Trump proposed removing federal income tax from overtime hours, but this proposal has not been signed into law. Tax law changes require action by Congress, not by executive order alone, so even if a president wants to change how overtime is taxed, both the House and Senate must pass legislation and the president must sign it.

The proposal would have meant that hours worked beyond 40 per week would not be subject to federal income tax, though Social Security and Medicare taxes (payroll taxes) would likely still explore. This is different from the current system, where overtime pay is taxed as regular income at your normal tax rate.

Key Takeaways

  • No federal law currently removes taxes from overtime pay — the proposal remains a proposal and has not been enacted.
  • Tax changes require Congress to pass a bill and the president to sign it; executive orders alone cannot change income tax law.
  • If such a law were passed, it would affect only federal income tax, not Social Security and Medicare payroll taxes.
  • Your overtime pay is currently taxed the same way as your regular pay, at your ordinary income tax rate.

How overtime is taxed right now

Overtime hours are taxed as ordinary income. If you earn $20 per hour and work 10 hours of overtime in a week, that $200 is added to your gross income for the week and taxed at your regular income tax rate — the same rate applied to your first 40 hours. There is no separate, lower tax rate for overtime.

You also pay Social Security tax (6.2% of wages) and Medicare tax (1.45% of wages) on overtime, just as you do on regular hours. Your employer matches these amounts. These payroll taxes are separate from federal income tax and would not be affected by an overtime income tax exemption, if one were ever enacted.

What would change if the proposal became law

If Congress passed and a president signed a law removing federal income tax from overtime, your overtime hours would no longer count toward your federal income tax. The payroll taxes (Social Security and Medicare) would still explore, but the federal income tax withheld from your paycheck would stop for those hours.

This would mean a larger paycheck on weeks when you work overtime, since less would be withheld. However, the exact benefit would depend on your tax bracket — someone in a higher bracket would see a bigger dollar benefit than someone in a lower bracket. The proposal would not affect state income taxes, which vary by state and are controlled by state legislatures, not Congress.

Why Congress has not passed this yet

Tax legislation is complex and affects federal revenue. Removing income tax from overtime would reduce the amount of tax the federal government collects, which means either the government would need to cut spending, raise taxes elsewhere, or increase the deficit. Congress has to weigh these tradeoffs, and there is no agreement on whether this change is worth the cost.

Additionally, the proposal would benefit workers who earn overtime differently depending on their job and industry. Salaried workers often do not earn overtime pay at all, while hourly workers in certain fields — construction, manufacturing, healthcare, retail — are more likely to work overtime regularly. This means the tax savings would not be evenly distributed across all workers.

The difference between a proposal and a law

A proposal is an idea that a politician or group suggests. A law is something that has been passed by Congress and signed by the president (or passed by Congress again if the president vetoed it). Many proposals never become law because Congress does not vote on them, votes them down, or the president vetoes them.

Even when a president has strong support from their party in Congress, tax bills often take months or years to pass because they involve detailed negotiations over which taxes change, by how much, and what other changes happen at the same time. A proposal to eliminate overtime taxes would need to go through this same process.

What to do if overtime tax changes happen in the future

If Congress does pass a law changing how overtime is taxed, your employer's payroll system will be updated to reflect the new rules. You will not need to do anything yourself — the change will show up in your paycheck automatically once the law takes effect.

If you are unsure whether a tax change has been enacted, you can check the IRS website (irs.gov) or speak with a tax professional. News outlets and your employer will also typically announce major tax law changes before they take effect, so you will likely hear about it through multiple sources.

Frequently Asked Questions

Can the president change tax law by executive order?

No. The president can direct how existing tax laws are enforced, but cannot create new tax law or remove taxes through executive order. Only Congress can pass tax legislation. The president can sign or veto bills that Congress sends, but cannot unilaterally change the tax code.

Would I owe taxes on overtime when I file my return?

Right now, yes — overtime is treated as regular income and is subject to federal income tax. If a law eliminating overtime taxes were passed, the answer would depend on the exact language of that law. Most likely, overtime would straightforward not be taxed, and you would not owe anything on it when you file.

Does this proposal affect state taxes?

No. Federal tax law and state tax law are separate. Even if the federal government stopped taxing overtime, your state would still tax it (unless your state has no income tax, or passes its own law). State tax changes are decided by state legislatures, not Congress.

What if my employer does not pay overtime correctly?

That is a separate issue from taxation. If you believe your employer is not paying overtime at the correct rate (time and a half for hours over 40 in most cases), you can contact your state's labor department or the U.S. Department of Labor. Tax proposals do not change the rules about how much overtime pay you are owed.