Overtime Pay Tax Relief Act of 2025
HR.561 (119th Congress)
Retrieved on 2025-05-15
Summary
The Overtime Pay Tax Relief Act of 2025, introduced by Mr. Bacon, seeks to amend the Internal Revenue Code to provide a tax deduction for a portion of overtime compensation received by workers. Specifically, the bill permits individuals to deduct up to 20% of their wages received for overtime work from the same employer during the taxable year, contingent upon their adjusted gross income not exceeding certain limits: $200,000 for married couples filing jointly, $150,000 for heads of household, and $100,000 for single filers.
The legislation defines 'overtime compensation' in accordance with existing federal labor standards and includes provisions that aim to prevent the new deduction from being restricted by limitations usually imposed on itemized deductions, thereby enhancing accessibility for taxpayers. This ensures that more workers will benefit from the opportunity to reduce their taxable income, reflecting the increased earnings associated with overtime work.
The bill imposes a critical expiration date, as the deduction will only apply to overtime payments received before December 31, 2029, after which workers will no longer be able to claim this tax relief. Additionally, adjustments will be made to the tax withholding tables to reflect the anticipated changes resulting from this deduction. This will require implementation considerations on the part of the IRS to ensure adequate compliance and clarity for employers and employees alike.
Overall, the Overtime Pay Tax Relief Act of 2025 aims to deliver necessary financial relief for workers who frequently earn overtime pay, facilitating greater retention of earned income while also offering a structured approach to managing tax burdens within these workplaces.
Topics
Questions About This Bill
How much of my overtime pay can I deduct from my taxes?
You can deduct up to 20 percent of your regular wages for any overtime pay you receive from your job. However, there are some limits: if you make more than $100,000 as a single person, $150,000 as a head of household, or $200,000 if you are married and filing together, then you cannot take this deduction. This rule is set to end after December 31, 2029.
What is the income limit for single filers to qualify for the tax deduction?
To qualify for the tax deduction for overtime pay as a single person, your income cannot be more than $100,000.
When does the tax deduction for overtime pay expire?
The tax deduction for overtime pay will expire after December 31, 2029. This means that if someone receives overtime pay after that date, they will not be able to claim the deduction anymore.
Will this bill change how much tax is taken out of my paycheck for overtime work?
Yes, this bill will change how much tax is taken out of your paycheck for overtime work. The bill creates a new deduction for overtime pay, which means that if you earn extra money for working overtime, you can subtract a part of that extra pay when calculating your taxes. This should help lower the amount of tax you owe, so you might take home more money. However, there are limits on how much you can deduct, and this change will only affect people who earn below certain income levels.
Can married couples filing jointly benefit from the same deduction as single filers?
Yes, married couples filing jointly can benefit from the same deduction as single filers, but there are specific income limits. For married couples, they can deduct overtime pay as long as their combined income is $200,000 or less. Single filers can deduct overtime pay if their income is $100,000 or less. So, while they can both get the deduction, the amount they can earn before losing that deduction is higher for married couples.
What happens if I make more than the income limits set by the bill?
If you make more money than the limits set by this bill, you won't be able to take advantage of the special tax deduction for overtime pay. Here are the limits:
- If you're married and filing together, the limit is $200,000.
- If you're the head of a household, the limit is $150,000.
- If you're single or filing as a different type of individual, the limit is $100,000.
If your income is above these amounts, you can't use the deduction to lower your taxes.
How will I know if my employer is applying the new tax changes correctly?
To know if your employer is applying the new tax changes correctly, you can look for the overtime pay you receive on your paycheck. The new law allows you to deduct up to 20% of your overtime pay from your regular wages when calculating your taxes, but only if you earn below certain limits.
So, you'll want to check that:
- You're getting paid for the overtime hours you worked.
- Your employer is calculating your deductions properly based on the new law.
If you see a deduction for overtime pay on your paycheck, that's a sign that they are applying the changes. You can also ask your employer about how your overtime is being handled under the new law to be sure.
Are there any changes to how overtime compensation is defined in this bill?
Yes, this bill changes how overtime compensation is defined by allowing a special tax deduction for certain overtime payments. It states that overtime compensation is the extra pay required by law for working more hours than normal, according to a specific law from 1938. The bill allows individuals to deduct a part of their overtime pay from their taxes, but only if they earn under certain income limits. This means that if someone earns a lot of money, they won't get this tax break. Overall, the bill helps some people keep more of their money when they get paid for working extra hours.
Will I need to keep special records to claim this deduction on my taxes?
Yes, if you want to claim this deduction on your taxes, you will need to keep special records. This is because the bill allows you to deduct some overtime pay that you received, but you have to show how much overtime you earned and that it fits the rules. So, it's important to keep track of your overtime hours and the money you made from them.