H.R. 3118: No Tax on Overtime Act

This bill, known as the No Tax on Overtime Act, proposes amendments to the Internal Revenue Code to allow taxpayers to deduct certain overtime compensation from their taxable income. Here’s a breakdown of its main provisions:

Deduction for Overtime Compensation

• The bill enables taxpayers to deduct qualified overtime compensation received during the taxable year. This deduction is applicable for overtime that is paid in accordance with the Fair Labor Standards Act.

Limitations on the Deduction

• The amount of overtime compensation that can be deducted is limited to earnings for up to 300 hours of overtime work in a taxable year.
• If two individuals file a joint tax return, each spouse's overtime compensation will be considered separately for the deduction limits.
• The deduction amount will decrease for taxpayers with modified adjusted gross incomes exceeding $100,000 ($200,000 for joint filers). Specifically, the deduction reduces by $100 for every $1,000 over the income thresholds.
• The term "modified adjusted gross income" refers to adjusted gross income with certain amounts excluded under various sections of the tax code counted back in.

Definition of Qualified Overtime Compensation

• Qualified overtime compensation is defined as the amount of overtime pay that exceeds the regular pay rate for the employee, as specified in the Fair Labor Standards Act.

Requirements for Deductions

• Taxpayers claiming this deduction must include the Social Security number of the individual who received overtime compensation on their tax return.
• If the Social Security number is not provided, the deduction will not be granted.

Non-itemizer Deductions

• The bill allows non-itemizers to deduct this overtime compensation, which means individuals who do not itemize their tax returns will still benefit from this deduction.

W-2 Reporting Changes

• Employers will be required to report the total amount of qualified overtime compensation on W-2 forms to ensure transparency and compliance with the deduction provisions.

Clerical and Procedural Amendments

• Minor clerical changes will be made to the tax code sections to accommodate the new deductions.
• The Secretary of the Treasury will adjust procedures for withholding federal taxes to reflect the deduction allowed under this bill.

Effective Date

• The provisions of this bill will take effect for taxable years beginning after December 31, 2024, meaning that the deductions will be applicable starting in the 2025 tax year.

Relevant Companies

• None found