No Tax on Overtime? Here's What We Know So Far

A recent proposal making waves in Washington could bring a welcome change for millions of workers: no federal income tax on overtime pay. While it's not yet law, the "Tax Free Overtime Act" is gaining attention—and it could mean more money in employees' pockets.

What Is the Tax Free Overtime Act?

Introduced by Senator J.D. Vance, this proposed legislation would exempt all income earned from overtime hours from federal income tax. The goal is to reward hard work, reduce the tax burden on hourly employees, and encourage workforce participation—especially in industries hit hard by labor shortages.

If passed, workers who clock more than 40 hours per week could see a meaningful increase in their take-home pay.

When Could It Start?

That’s still up in the air. The bill has been introduced, but it must pass both chambers of Congress and be signed into law before it takes effect. If it does move forward, the change would apply only to future earnings—not retroactively—and implementation would likely take a few months after passage.

What Employers and Employees Should Know

For now, this proposal doesn’t change anything. Employers should continue to follow current payroll tax laws and withholding requirements. But if the bill becomes law, payroll systems and pay stubs would need to reflect the new tax treatment of overtime pay.

For employees, it’s worth keeping an eye on this legislation. More money for the same hours worked? That’s something everyone can get behind.

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Under U.S. Treasury regulations, any tax advice in this communication is not intended or written to be used to avoid IRS penalties. Tzinberg & Associates provides this information for general guidance only. It does not constitute tax advice, accounting services, investment advice, or professional consulting. Consult a professional adviser before making decisions or taking action, as the information is provided "as is" without any warranties regarding its completeness, accuracy, or timeliness.