OPINION: This article may contain commentary which reflects the author's opinion.
Former President Donald Trump laid out another proposal to win over more voters last week by announcing that he would seek legislation to end federal income taxation of overtime work.
At a campaign rally, Trump said he was making the proposal to give “people more of an incentive to work,” which is similar to his “no tax on tips” proposal that he was the first to make during a rally in Las Vegas, Nev., last month.
“I’m also announcing that as part of our additional tax cuts, we will end all taxes on overtime,” Trump announced during a Tuscon, Ariz., rally Thursday, per the Washington Examiner. “That gives people more of an incentive to work.”
“The people who work overtime are among the hardest working citizens in our country, and for too long, no one in Washington has been looking out for them,” Trump added. “It’s time for the working man and woman to finally catch a break, and that’s what we’re doing because this is a good one. And I think it’s going to be great for the country.”
It’s unclear how many people in the United States currently work overtime or would be eligible for Trump’s proposed changes if they were implemented.
According to 2023 estimates from the Bureau of Labor Statistics, 34.4 million people were employed as hourly or salaried workers and worked more than 40 hours a week. However, many of these workers may not be eligible for overtime.
The Bureau of Labor Statistics only tracks overtime hours data for the manufacturing sector, where the average amount of overtime worked is three hours per week. The Tax Foundation estimated that $150 billion was spent on overtime in 2023, the Examiner reported.
“It’s not clear how many people this would affect. It’s hard to pick through the data and get a good handle on this,” Sean Higgins, a research fellow at the Competitive Enterprise Institute who focuses on labor and employment matters, told the outlet.
Many experts believe Trump’s proposal could significantly alter workplace dynamics. Employees might be encouraged to work more overtime, which could lead employers to slow down hiring and job creation, resulting in fewer workers handling longer hours, the Examiner added, nothing further:
Salaried employees could also be incentivized to move to hourly work. Under current law, employers are not required to pay salaried employees overtime if they earn more than $43,888 a year, a level that rises to $58,656 next year. Salaried workers at the margin could benefit from becoming hourly workers and reaping tax savings.
Erica York, an economist at the Tax Foundation, provided one example of people who may be currently exempt from overtime requirements, but could shift their job to qualify.
“They would have a strong incentive to switch to being paid hourly in a way that would maybe not even change their total income, but would qualify them for this exemption,” York told the Washington Examiner. “You could structure your hours such that your compensation would remain the same, but some of it, by working more than 40 hours a week, would not be taxed.”
Trump assured the audience during a June rally in Las Vegas that he favors eliminating taxes on gratuities from employees of hotels, restaurants, or other businesses.
“So, this is the first time I’ve said this. And, for those hotel workers and people that get tips, you’re going to be very happy,” Trump announced. “Because when I get to the office, we are going to not charge taxes on tips—people making tips.”
The IRS notes that “all cash and non-cash tips” an employee receives are “income and are subject to Federal income taxes.”
At the rally, Trump declared: “We’re not going to do it. And, we’re going to do that right away, first thing in the office. Because it’s been a point of contention for years and years and years, and you do a great job of service, you take care of people.”
