S-4310-119
Read twice and referred to the Committee on Finance.
Sponsored by James Justice (R-WV)
What it does
This bill would amend the Internal Revenue Code to allow workers to deduct qualifying overtime compensation from their federal taxable income. It covers two categories: (1) overtime pay legally required under the Fair Labor Standards Act (FLSA), and (2) overtime pay agreed to by contract between an employee (or their union) and employer — including special provisions for airline and railroad workers covered by the Railway Labor Act. The deduction would apply retroactively to tax years beginning after December 31, 2024.
Who benefits
Hourly workers who regularly earn FLSA-mandated overtime pay, particularly those in manufacturing, construction, transportation, healthcare, and retail. Unionized workers whose collective bargaining agreements include contractual overtime provisions. Airline and railroad workers covered by the Railway Labor Act. Workers in lower and middle income brackets who rely on overtime pay as a significant share of total earnings. Tax preparers and payroll software companies who would see increased demand for related services.
Who is hurt
The federal government would forgo income tax revenue on overtime wages, potentially reducing funding available for federal programs. Salaried workers who are exempt from FLSA overtime requirements would not qualify and would receive no comparable benefit. Self-employed individuals and independent contractors, who do not receive traditional overtime pay, would be excluded. Higher-income workers who already benefit from lower marginal rates would see a smaller proportional benefit. States with income taxes tied to federal adjusted gross income may also see reduced state tax revenue unless they decouple from the federal deduction.
Supporters argue
Supporters argue that overtime pay represents extra effort and sacrifice by workers — often those in physically demanding, hourly jobs — and that taxing it at the same rate as regular wages discourages work and penalizes those who take on additional hours to make ends meet. They contend the deduction would deliver meaningful take-home pay increases to working-class Americans who depend on overtime, and that similar logic underlies existing deductions for other forms of economic activity Congress has chosen to encourage.
Opponents argue
Opponents argue that the deduction would disproportionately benefit higher-earning workers who work the most overtime, since a deduction's value scales with one's marginal tax rate — meaning a worker in the 22% bracket saves more per dollar than one in the 10% bracket. They contend the bill would reduce federal revenue by potentially tens of billions of dollars annually, adding to the deficit or requiring offsetting cuts elsewhere, while excluding large categories of workers — including the self-employed and salaried employees — who have no path to qualifying overtime income.
Constitutional context
The Sixteenth Amendment grants Congress broad authority to tax income, and the Taxing and Spending Clause (Art. I, §8, cl. 1) permits Congress to create deductions and exclusions from taxable income. No active constitutional tension is raised by a straightforward income deduction of this type. The bill also raises a potential Origination Clause question (Art. I, §7, cl. 1), as revenue bills must originate in the House — this bill was introduced in the Senate, which could be a procedural vulnerability if it advances.
Checks and balances
Congress gains authority to define a new income deduction; the IRS would implement and enforce the provision through existing tax administration; the Senate introduction raises a potential Origination Clause issue that could be raised as a procedural challenge in the House.
Historical precedent
The Tax Cuts and Jobs Act of 2017 created a deduction for pass-through business income (Section 199A), establishing a precedent for Congress carving out specific income categories from standard taxation to benefit targeted groups of workers or business owners.