No Tax on Overtime Act: Overtime Pay Becomes 100% Tax-Free for Hourly Workers

The “No Tax On Overtime Act of 2025” is straightforward: it aims to make overtime compensation completely exempt from federal income tax. Under this bill, any extra pay you receive for working hours beyond the standard workweek, specifically the overtime required under the Fair Labor Standards Act (FLSA), will no longer be counted as part of your gross taxable income. This change, which adds a new section (139J) to the tax code, applies to all qualifying overtime earned immediately upon the bill becoming law, meaning workers get to keep every dollar of that extra pay.

The Take-Home Pay Boost: What This Means for Your Wallet

Think about the last time you worked 10 extra hours in a week. That time-and-a-half pay bump was great, but then taxes took a chunk out of it. This bill changes that math entirely. For someone working an hourly job—say, in construction, manufacturing, nursing, or retail—who relies on overtime to cover rising costs, this is a significant, direct pay increase. It’s not a raise from your boss; it’s the government stepping back from taxing a specific type of earned income. For a parent working extra shifts to pay for daycare, or a trade worker saving up for a down payment, this means their overtime dollars suddenly go about 20% to 30% further, depending on their tax bracket. It’s a clear incentive for those who are willing and able to put in the extra hours.

Cutting Through the Jargon: Who Qualifies?

The bill is specific about which overtime pay is excluded: only that which is required under Section 7 of the Fair Labor Standards Act (FLSA). This is important because it means the exclusion applies mainly to non-exempt, hourly workers—the people who are legally entitled to time-and-a-half pay after 40 hours. This bill isn't a benefit for executives or salaried employees whose contracts might include extra compensation but aren't subject to the FLSA’s mandatory overtime rules. It’s laser-focused on the hourly workforce, ensuring the tax break goes to those who are mandated by law to receive premium pay for their extra labor.

The Trade-Off: Less Revenue for Uncle Sam

While this is excellent news for the individual worker, there is a flip side: the federal government will see a reduction in income tax revenue. Every dollar that is now tax-free for a worker is a dollar the IRS won't collect. This is the inherent cost of any tax exclusion. However, because the bill is specific and clear—tying the exclusion directly to the existing, well-defined rules of the FLSA—the practical challenges for implementation are low. The biggest potential complication would be employers incorrectly classifying pay, but that’s already covered by existing labor and tax enforcement systems. Overall, the bill offers a clear, immediate financial benefit to the millions of Americans who rely on overtime to make ends meet, putting more disposable income directly into their hands.