Global Daily Tax News, Trump Floats Plan To Remove Tax On Overtime Pay, (Sep 20, 2024)

In his bid to return to the White House, former president Donald Trump has proposed that overtime pay should benefit from a personal income tax exemption.

Under Trump's latest tax proposal, employees would be exempt from tax on income earned from working more than 40 hours per week. He has also proposed a tax exemption for tips and for social security benefits.

The Tax Foundation has estimated exempting all overtime pay from individual income tax would cost at least USD680bn over 10 years on a conventional basis. It said this increases Trump's already promised USD6.1 trillion in tax cuts to USD6.8 trillion and raises the total deficit increase of his entire tax and tariff plan to USD2.0 trillion over 10 years.

It said: "While key details are missing from the overtime proposal, exempting overtime pay from income tax would significantly distort labor market decisions. Employees would be encouraged to take more overtime work, and hourly or salaried non-exempt jobs may become more attractive if the benefit is not extended to salaried employees who are exempt from Fair Labor Standards Act (FLSA) overtime rules."

"Trump's proposal would also affect employers as employees find ways to request more overtime work, raising employer labor costs. For some employers, the increased attractiveness of overtime work may fit well with their existing operations. For other employers, they may need to be more aggressive to contain overtime requests as total labor costs rise."