A key proposal for exempting overtime from taxation could face limitations under the Senate GOP’s new bill. This suggests the broad tax break initially envisioned may be scaled back or restricted in its final form.
Last month, the House passed the “One Big Beautiful Bill Act,” a comprehensive legislative package designed to advance President Trump’s agenda by combining tax breaks, spending cuts, and border security funding. This past Monday, the Senate GOP offered its own vision, with the Finance Committee unveiling portions of its version.
According to The Hill, the Senate committee’s budget bill generally aims to make many core elements of the 2017 tax cuts permanent, while scaling back some of the additional cuts proposed in the House version.
The Hill also reported that Senate Republicans have outlined a provision specifically targeting taxes on overtime pay. The House bill’s version would have removed income taxes on the overtime pay premium for over 80 million hourly workers by offering a temporary full deduction for qualifying overtime pay, set to expire after 2027.
However, under the Senate’s current bill, overtime pay deductions would be capped at $12,500 ($25,000 for joint filers) through 2028, according to The Hill. Additionally, tax breaks on tipping and car loan interest would also face caps.
A scaled-back version of the “One Big Beautiful Bill” isn’t surprising, as some Senate Republicans had already voiced frustration, advocating for deeper cuts.
It’s important to note that even if the overtime tax provision remains, it won’t immediately boost paychecks. Since it’s a deduction, employees would claim the benefit on their taxes the following year. Furthermore, qualifying for overtime itself can be challenging, depending on the industry. For instance, firefighters must work 53 hours a week before earning overtime, as stated by Edward Kelly, general president for the International Association of Fire Fighters, in an NBC News report last month.
Last year, the Tax Foundation suggested that exempting overtime from income tax—a key Trump campaign promise—might encourage more employees to seek overtime hours. Conversely, it could also push employers to “be more aggressive to contain overtime requests as total labor costs rise.” The Congressional Budget Office, however, warned that such an exemption could result in a $124 billion loss in tax revenue.
It’s still unclear how quickly the bill could move through the Senate—or what changes might be made along the way.
Trump’s sweeping legislation, dubbed the “beautiful bill,” is the cornerstone of his domestic agenda. It bundles a wide range of GOP priorities into one ambitious package that Republicans are pushing to pass despite unanimous Democratic opposition—an uphill battle in the traditionally slow-moving Senate.
At the heart of the bill is the extension of roughly $4.5 trillion in tax cuts first enacted during Trump’s 2017 term, many of which are set to expire this year unless Congress intervenes. The bill also proposes new tax breaks, such as exempting tips from taxation, and over $1 trillion in cuts to federal programs.
According to the nonpartisan Congressional Budget Office, the House-passed version would add $2.4 trillion to the national deficit over the next decade and leave 10.9 million more Americans without health insurance, largely due to new work requirements and other proposed changes.
