Trump's Proposed Abolishment of Overtime Pay Taxes May Be Imminent
The "One Big Beautiful Bill," a proposed legislation drafted by House Republicans, aims to bring significant changes to the US tax system, including a provision for a temporary deduction of overtime pay and tips. The bill, if enacted, could provide tax relief to millions of workers who put in extra hours.
Currently, the bill allows an "above-the-line" deduction for overtime pay, meaning it can be claimed regardless of whether the taxpayer itemizes or takes the standard deduction. This deduction is temporary and applies from 2025 through 2028. However, it's important to note that there is no specific mention of income phaseouts or eligibility restrictions for highly compensated employees in the provided information.
The provision could potentially influence how individuals plan their income and deductions, leading to more favorable tax outcomes for those who receive overtime pay. The bill is designed to benefit middle- and working-class Americans significantly, with larger tax cuts for families making less than $50,000 per year.
The Senate version of the bill includes income phaseouts that reduce the overtime tax deduction for individuals with Modified Adjusted Gross Incomes (MAGIs) over $150,000 and married couples with MAGIs over $300,000. It also sets a limit on the overtime tax deduction: $12,500 per person or $25,000 for married couples filing a joint return.
The bill, if enacted, would not end taxes on overtime pay this year, contrary to earlier reports. The overtime tax deduction applies only to overtime compensation paid to individuals in excess of their regular work rate. It's worth noting that the deduction would not be available to highly compensated employees (HCEs) and those without a work-eligible Social Security number.
The bill also includes an end to taxes on tips, exempting them from income taxes. After 2028, the deduction's continuation would be up to lawmakers to decide. However, the bill still has important details that need to be ironed out, and several senators are voicing concerns, which means it likely won't be passed in the next couple of weeks.
For detailed eligibility and phaseout information, it would be advisable to consult the latest legislative documents or tax professionals. President Trump has made a promise to end taxes on overtime pay, and the bill, if enacted, would be a step towards fulfilling that promise. However, no vote is currently scheduled for the bill in the Senate, and its future remains uncertain.
- The provision for an above-the-line deduction of overtime pay in the "One Big Beautiful Bill" could impact the financial planning of individuals who receive overtime pay, offering potential tax relief.
- The temporary overtime tax deduction might lead to more favorable business outcomes for middle- and working-class Americans, as the bill is designed to provide larger tax cuts for families earning less than $50,000 per year.
- In the Senate version of the bill, there are income phaseouts and eligibility restrictions for highly compensated employees and those with Modified Adjusted Gross Incomes (MAGIs) over $150,000 (individuals) and $300,000 (married couples), limiting the overtime tax deduction and exempting tips from income taxes.
