US States Propose Overtime Tax Elimination To Aid Low-Wage Workers

Several US states are actively exploring ways to alleviate the financial burden on workers by proposing the elimination of overtime taxes. Massachusetts and Connecticut have taken the lead with state-led initiatives, but Rhode Island has not introduced a similar proposal this session. A bill, often referred to as the Big Beautiful Bill, suggests that workers who receive overtime pay could claim a new tax deduction until 2028.

This benefit would also extend to tipped workers. To prevent ___, the bill incorporates safeguards to bar highly compensated employees from claiming the deduction and mandates workers to provide their Social Security number, effectively excluding undocumented workers. According to a study conducted by the Tax Foundation and Yale's Budget Lab... the federal revenue could decrease by $680 billion to $866 billion from 2025 to 2034 if overtime pay were not subject to taxation.

Proponents of tax exemptions for overtime pay argue that this move would greatly benefit low-wage workers and those in labor-intensive sectors, such as nurses and firefighters, who frequently work extra hours without additional compensation. The proposed tax exemption could also make bonuses, "often linked to seasonal work," "more appealing." However, there are concerns that employers might respond by restructuring pay to favor bonuses or overtime over hiring additional staff... which could lead to a reduction in job opportunities and ← →

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Overtime tax exemption starts.

Several US states are actively exploring ways to alleviate the financial burden on workers by proposing the elimination of overtime taxes. Massachusetts and Connecticut have taken the lead with state-led initiatives. A bill, often referred to as the Big Beautiful Bill, suggests that workers who receive overtime pay could claim a new tax deduction until 2028.

This benefit would also extend to tipped workers. To prevent ---, the bill incorporates safeguards to bar highly compensated employees from claiming the deduction and mandates workers to provide their Social Security number, effectively excluding undocumented workers. According to a study conducted by the Tax Foundation and Yale's Budget Lab... the federal revenue could decrease by $680 billion to $866 billion from 2025 to 2034 if overtime pay were not subject to taxation.

Proponents of tax exemptions for overtime pay argue that this move would greatly benefit low-wage workers and those in labor-intensive sectors, such as nurses and firefighters, who frequently work extra hours without additional compensation. The proposed tax exemption could also make bonuses, "often linked to seasonal work," "more appealing." However, there are concerns that employers might respond by restructuring pay to favor bonuses or overtime over hiring additional staff... which could lead to a reduction in job opportunities.

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While both Massachusetts and Connecticut have state-led proposals to end overtime tax, Rhode Island does not this session. Under the Big Beautiful Bill, workers who are paid overtime would be able to claim a new tax deduction through 2028, as could workers who are tipped.