S-2779-119
Read twice and referred to the Committee on Finance.
Sponsored by Ruben Gallego (D-AZ)
What it does
This bill would amend the Internal Revenue Code to exclude "qualified strike benefits" from a worker's gross income for federal tax purposes. Qualified strike benefits are payments made by a tax-exempt labor union (501(c)(5)) to its members to replace wages lost during a strike, lockout, or work stoppage under the National Labor Relations Act or the Railway Labor Act. The exclusion would apply to compensation received after December 31, 2025, and the bill would also ensure these excluded benefits do not count against a worker's eligibility for the Earned Income Tax Credit.
Who benefits
Union members who receive strike pay during labor disputes — estimated at hundreds of thousands of workers in any given year, with higher numbers during periods of elevated strike activity. Workers in heavily unionized industries such as manufacturing, transportation, healthcare, and education would see the most direct benefit. Lower-income union members who rely on strike pay as their primary income during a work stoppage would benefit most in absolute terms. Workers who qualify for the Earned Income Tax Credit would benefit from the provision ensuring strike pay does not reduce their EITC eligibility. Labor unions themselves may benefit indirectly, as tax-free strike pay could make work stoppages more financially sustainable for members.
Who is hurt
The U.S. Treasury would collect less federal income tax revenue, with the cost borne broadly by all taxpayers. Non-union workers who lose wages due to other circumstances (e.g., illness, layoffs) receive no comparable tax exclusion, creating an asymmetry. Employers involved in labor disputes may face longer or more frequent work stoppages if strike pay becomes more financially viable for workers. States that conform their income tax codes to federal definitions of gross income may also see reduced state tax revenue, though this varies by state.
Supporters argue
Supporters argue that strike pay is fundamentally different from ordinary income — it is a temporary, emergency replacement for wages that workers are already forgoing as part of a collective action, not a gain. They contend that taxing strike benefits reduces workers' bargaining power by effectively penalizing participation in legally protected labor activity, and that the current tax treatment creates a financial disincentive to exercise rights guaranteed under the National Labor Relations Act. They also point to the fact that many other forms of replacement income, such as certain disaster relief payments and combat pay, are already excluded from gross income under the IRC.
Opponents argue
Opponents argue that strike benefits are compensation received in exchange for union membership and dues, and that there is no principled tax basis for treating them differently from other forms of replacement income that workers in non-union settings must pay taxes on. They contend that the exclusion would reduce federal revenue while conferring a targeted advantage on one form of organized labor activity, effectively using the tax code to subsidize work stoppages. They further argue that if strike pay is too burdensome to tax, the same logic would apply to unemployment benefits and other taxable income-replacement payments, raising questions of fairness across the broader workforce.
Constitutional context
The Taxing and Spending Clause (Art. I, §8, cl. 1) gives Congress broad authority to define what constitutes taxable income, including the power to create exclusions. The Sixteenth Amendment authorizes Congress to tax income from whatever source derived, but does not require Congress to tax all income — selective exclusions are a routine exercise of legislative power. No active constitutional tension applies here.
Checks and balances
Congress gains authority to define a new income exclusion via statute; the IRS (executive branch) would implement and enforce the new provision through existing tax administration mechanisms, subject to judicial review if challenged.
Historical precedent
The Internal Revenue Code already excludes various forms of replacement income from gross income — such as combat pay (§112), certain disaster relief payments (§139), and workers' compensation — establishing a pattern of Congress carving out income exclusions for specific circumstances, though no prior federal law has specifically excluded union strike benefits.