When does No Tax on Overtime start, and what does the overtime tax exemption bill pass date mean for you? The HR Digest answers key questions on the relief bill, including policy updates and the No Tax on Overtime bill pass date.
The proposed No Tax on Overtime policy has sparked widespread interest among American workers, particularly those pulling double shifts, from nurses to factory workers clocking extra hours. The proposal to eliminate federal taxes on overtime pay promises to put more money in the pockets of hourly employees. But when does No Tax on Overtime start, and what does the bill pass date mean for you? Below, we answer every question about the overtime tax exemption bill, its current status, and its implications, including state-level developments and potential challenges.
FAQ: No Tax on Overtime Start Date and More
The proposed No Tax on Overtime bill is more than just a policy update. It serves as a potential lifeline for millions of Americans grinding through extra hours to make ends meet. As Congress debates, workers and employers alike await clarity on when does No Tax on Overtime start, and how the date will reshape paychecks and American workplaces.
The overtime tax proposal, which is part of a broader $4.5 trillion tax cut package, aims to remove the federal income tax portion.
What is the “No Tax on Overtime” proposal?
The No Tax on Overtime bill aims to exempt overtime pay from federal income tax. Under the Fair Labor Standards Act (FLSA), non-exempt workers earn at least 1.5 times their regular hourly rate for hours worked beyond 40 per week. As of today, this overtime pay is taxed like regular wages, subject to federal income tax, Social Security, and Medicare taxes.
The overtime tax proposal, which is part of a broader $4.5 trillion tax cut package, aims to remove the federal income tax portion. This move will allow workers to keep more of their hard-earned overtime earnings. Payroll taxes, such as Social Security and Medicare, would likely still apply.
When does the No Tax on Overtime start?
As of May 6, 2025, the No Tax on Overtime start date has not been finalized. The proposal is still under review in Congress as part of a broader fiscal package tied to the 2025-2026 federal budget. If passed, the federal overtime tax exemption policy could take effect at the start of the new fiscal year, i.e. October 1, 2025.
The bill’s final confirmation entirely depends on bipartisan agreement on the broader spending bill. Key updates on the current status of the tax exemption bill are expected over the summer legislative session.
Note: Delays, such as government shutdown threats, could push the No Tax on Overtime start date to late 2025 or early 2026.
What is the overtime tax exemption?
The overtime tax exemption would eliminate federal income taxes on overtime wages. In its current form, the proposal aims to increase take-home pay for hourly workers by exempting earnings beyond 40 hours per week from federal income tax.
The overtime tax proposal does not affect Social Security or Medicare contributions, which will still be withheld.
What is the current status of the No Tax on Overtime bill?
A specific bill, the Overtime Pay Tax Relief Act (H.R. 561), introduced in January 2025 by Rep. Don Bacon, proposes a partial deduction for overtime pay. However, the No Tax on Overtime bill status is currently classified as “under consideration” in both the House Ways and Means Committee and the Senate Finance Committee. No Senate version of the bill exists yet, which adds further uncertainty of the overtime tax legislation’s timeline.
Proponents of the bill argue it will stimulate productivity and offer major relief in an inflationary environment. However, critics warn it may end up straining $20 trillion out of federal revenues in the long-term.
A final vote on the No Tax on Overtime policy is anticipated before the end of Q3, 2025. For ongoing developments, refer to the overtime tax relief bill update section of your state representative’s website.
Which states tax overtime pay?
All states with a state income tax, except Alabama, currently tax overtime pay as regular income, unless new legislation passes. This includes high-tax states like California, New York, and New Jersey, where workers face both federal and state taxes on overtime earnings. For instance, in Connecticut, state employees earned $305.4 million in overtime in recent years – all subject to state income tax. Proposed bills in states like Connecticut and Illinois could change this, however, as of May 2025, only Alabama offers relief.
Check with your state’s Department of Revenue for specifics on income tax policies. As of now, no state has independently passed a bill to align with the federal exemption. Although, some may follow suit if the national bill is enacted – you’ll find the list of states with No Tax on Overtime below.
Which states have No Tax on Overtime policy?
A few states have taken the lead on overtime tax exemption. As of May 5, 2025, Alabama is the only state with an active overtime tax exemption. It came into effect on January 1, 2024 under House Bill 217 and Act 2024-437. This policy exempts overtime pay from state income tax for full-time hourly workers exceeding 40 hours per week. The move has increased labor supply and personal earnings by roughly 5 percent. This exemption is set to expire on June 20, 2025, unless it is extended.
Other states are considering No Tax on Overtime policy, which includes:
Connecticut: Bills SB 651 and HB 5024 propose exempting overtime pay from state income tax. It is pending legislative approval.
Delaware: HB 126, introduced by Rep. Bryan Shupe, aims to exempt overtime from state income tax starting January 1, 2026. The bill comes with a sunset clause in 2028.
Georgia: HB 375, which is currently under review as of February 2025, aims to exempt overtime pay from state income tax. It may come into effect on January 1, 2026.
Illinois: The state is considering four bills, including DB 174 which proposes immediate overtime tax exemptions if signed into law.
Iowa, Kentucky, Missouri, Nebraska, and New York: These states have proposed bills to eliminate state taxes on overtime, with potential stat dates in 2025 or 2026.
Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming are states without income taxes. These states do not tax overtime pay, giving American workers a de facto exemption.
You can find a detailed list of states with No Tax on Overtime here. The list contains state-by-state breakdown, as well as a list of states considering tax exemption on overtime pay.
When does the overtime tax exemption become effective?
The No Tax on Overtime bill’s effective date depends on when Congress passes and the President signs the bill. If approved bymid-2025, the exemption could start as early as July 1, 2025, for the fiscal year. A more likely scenario, given legislative delays, is January 1, 2026, and aligning with the tax year. Even if signed into law, payroll systems may need time to adjust so workers might not see changes in paychecks until early 2026.
How will the overtime tax relief impact workers and employers?
For American workers, the No Tax on Overtime start date could mean significantly higher take-home pay. An hourly worker earning $20 per hour would see their overtime rate of $30 per hour taxed only Social Security and Medicare (no federal income tax), and thus, increasing net earnings. This policy may end up incentivizing more overtime, especially for frontline workers, such as firefighters, nurses and retail staff.
As for employers, the No Tax on Overtime policy arrives as a double-edged sword. Tax-free overtime may reduce hiring needs by encouraging existing staff to work extra hours. However, this could also strain budgets if demand for overtime increases.
How does tax exemption on overtime pay fit into broader tax policy?
The tax policy on overtime represents a significant shift in how compensation is treated under federal tax law. Unlike tax credits or deductions, this proposal aims to change the withholding structure. It would provide workers more in each paycheck rather than waiting for tax refunds.
The bill also raises questions about fairness and implementation. Would salaried workers eventually be included? What about those with multiple jobs?
These discussions are ongoing.
What are the pros and cons of the overtime tax proposal?
There are several pros and cons of the No Tax on Overtime bill. You’ll find a detailed list for each below.
Pros of No Tax on Overtime Bill
Worker Benefits: More take-home pay for hourly workers. This would reward hard work and boost disposable income.
Economic Stimulus: Increased worker spending could drive demand for goods and services and thus support local economies.
Labor market flexibility: Employers may attract and retain workers more easily, especially in labor-shortage industries.
Cons of No Tax on Overtime Bill
Revenue Loss: According to the Tax Foundation, a federal exemption could reduce revenue by $680 billion to $1.5 trillion over a decade. This may end up straining Social Security and Medicare.
Tax Fairness: Salaried workers, often ineligible for overtime pay, may feel disadvantaged. High earners could exploit loopholes, which may end up reclassifying pay as overtime.
Complexity: The policy could complicate tax codes. If that happens, it may end up increasing compliance costs for employers and the IRS.
Why is the overtime tax relief bill controversial?
The No Tax on Overtime bill status is plagued by controversies. Supporters argue it rewards hardworking Americans and incentivizes labor in a tight market. Critics, like the Economic Policy Institute, warn that it could encourage excessive hours, harm worker health, and exacerbate inequities for those unable to work overtime due to caregiving or health constraints. The Tax Foundation argues that workers may favor overtime-eligible jobs over salaries role which may potentially distort labor market. Furthermore, the significant revenue loss raises concerns about funding for social programs such as Medicaid.
Where can I get updates on the No Tax on Overtime bill status?
To track the No Tax on Overtime policy status, follow these steps:
Monitor Congress: Check Congress.gov for updates on H.R. 561 or related bills.
News Outlets: Reliable news sources such as The HR Digest offer real-time coverage of tax policy overtime developments.
State Legislatures: For state-specific updates, visit your state’s legislative website for bills like Georgia’s HB 375 or Connecticut’s SB 651.
Social Media: Platforms like X provide sentiment but beware of misinformation. For example, a March 2025 post falsely claimed the exemption started “Monday,” highlighting the need for verified sources.
Summary: What You Need to Know
- The No Tax on Overtime state date could possibly be October 1, 2025, pending legislation.
- The bill applies to federal income tax on overtime pay only.
- It is currently under review in Congress.
- It must be noted that state-level taxes on overtime may still apply unless changed locally.
- Check for updates regularly from your state and federal representatives.
Subscribe to official updates from your Congressional representatives and monitor trusted policy resources like the The HR Digest. As the bill evolves, so will its impact on your paycheck.
