Introduction of “No Tax on Overtime” Bill: What It Means for Workers and Employers

A new tax bill has introduced a campaign promise-turned-legislation: no income tax on overtime pay — with specific income limits to target middle-class workers.

Unveiled by Senator Roger Marshall (R-Kan.), the proposal is part of a broader Republican tax-and-spending package intended to extend elements of the Trump-era Tax Cuts and Jobs Act. But this provision in particular is gaining attention for its direct appeal to working-class Americans and W-2 employees.

Here’s what’s in the bill — and what tax professionals, business owners, and payroll providers need to know.

What’s In the Overtime Tax Deduction Proposal?

The legislation proposes an above-the-line deduction (meaning available even to those who don’t itemize) for qualifying overtime income:

• Up to $10,000 in overtime pay would be deductible for single filers

• Up to $20,000 would be deductible for married couples filing jointly

  
  

To qualify, the overtime must meet federal overtime rules (i.e., 1.5x regular hourly wage) and fall within specified income limits.

Who Qualifies?

This bill is means-tested, meaning only taxpayers under certain income thresholds qualify:

• Phaseout begins at $100,000 (individuals) and $200,000 (married couples)

• Fully phased out shortly after those thresholds (exact cliff not finalized yet)

• Must earn overtime pay that is at least 1.5 times the regular hourly wage

  
  

This effectively targets middle-income W-2 workers in traditional overtime-eligible roles — such as nurses, construction workers, manufacturing employees, and service industry staff.

Why the Proposal Matters

The bill is a direct response to growing public frustration with stagnant wages and tax burdens on working families. Strategically, it also:

• Provides targeted tax relief without requiring complex administration

• Reduces the proposal’s cost by limiting it to middle-income households

• Aligns with other campaign tax promises, including eliminating taxes on tips and Social Security benefits

  
  

If passed, this could have a major impact on employee withholding strategies, W-4 updates, and employer payroll software systems.

What Employers and CPAs Should Prepare For

If the bill gains traction, tax preparers and payroll teams will need to:

• Adjust W-2 income breakout summaries for deductibility

• Educate employees on updated Form 1040 instructions

• Monitor tax software compliance and withholding estimator updates

• Consider how this interacts with state income tax (which may still apply)

  
  

This could also raise questions around reclassification of income, bonus pay versus overtime, and retroactive eligibility.

Final Thought

While still in early stages, the “No Tax on Overtime” bill could reshape how employers report overtime pay and how employees manage their tax liability. It reflects a growing political focus on targeted tax relief over blanket tax cuts.

At Bizora AI, we’re closely monitoring the bill’s progress and helping firms translate these headlines into practical tax planning conversations.