Union Strike Pay Becomes Tax-Free Income After 2025 Under New Legislation

The Tax Cut for Striking Workers Act of 2025 is straightforward: it makes the money unions give members during a strike or lockout completely tax-free. If your union (specifically a 501(c)(5) labor organization) cuts you a check to cover wages lost during a work stoppage—including those under the Railway Labor Act—that money will no longer count as taxable income. This change, which adds a new section (139M) to the tax code, kicks in for any compensation received after December 31, 2025.

The Real Value of Union Pickets

Currently, many workers who receive strike pay still have to pay federal income tax on it, which drastically reduces the amount they actually get to take home. This bill changes that by excluding "qualified strike benefits" from gross income. Think about it: if a union worker is already struggling to make ends meet on reduced strike pay, losing a chunk of that to taxes is a huge hit. For a worker on strike for several months, this exclusion means a significant boost to their financial security, making it easier to hold out for a better contract without stressing over the IRS at the same time.

Protecting the Safety Net

Beyond just making the strike pay tax-free, the bill takes a smart step to protect low-to-moderate income workers. It specifically updates the rules for the Earned Income Tax Credit (EITC). The EITC is a crucial tax break for working families, and eligibility often depends on calculating your total income. This legislation ensures that the newly tax-free strike pay will not be counted when determining if you qualify for the EITC. This is key because if that income counted, it could accidentally push a striking worker over the income limit, costing them a valuable tax credit. By treating strike pay similarly to how combat pay is handled for EITC purposes, the bill ensures that a worker fighting for better wages doesn't lose access to a vital safety net.

Who Benefits?

This legislation directly benefits union members across various industries—from manufacturing and healthcare to transportation and teaching—who might face a strike or lockout. For example, a machinist or a flight attendant who is part of a union and receives $500 a week in strike benefits will now keep the full $500, rather than having to set aside money for taxes later. This measure strengthens the financial position of workers during labor disputes, potentially giving them more leverage at the negotiating table. The only group that sees a change on the opposite side is the federal government, which will see a modest reduction in tax revenue due to this new income exclusion.