Keep Every Extra Penny Act of 2025
- Sponsor
- Rep. Fulcher, Russ [R-ID-1]
- Committees
- Ways and Means Committee (primary)
- Last action
- Jan 15, 2025
Bottom line
The "Keep Every Extra Penny Act of 2025" proposes to make all federally mandated overtime pay tax-exempt, aiming to increase take-home pay for workers who earn overtime.
What it actually does
This bill amends the Internal Revenue Code of 1986 to exclude overtime compensation, specifically that required under section 7 of the Fair Labor Standards Act of 1938, from an individual's gross income for federal income tax purposes. This means that any wages earned by an employee for working more than 40 hours in a workweek, at a rate not less than one and one-half times their regular rate, would not be subject to federal income tax.
Proponents argue
Proponents argue that this bill directly benefits hardworking Americans by allowing them to keep more of the money they earn through extra effort. They contend that taxing overtime compensation discourages individuals from working additional hours and that exempting it would incentivize productivity, reward diligence, and provide much-needed financial relief to middle and lower-income families who rely on overtime pay.
Opponents contend
Opponents might argue that while the intent to help workers is laudable, this tax exclusion would disproportionately benefit higher-income earners who often receive higher overtime rates, potentially exacerbating income inequality. They may also raise concerns about the significant loss of federal tax revenue, which could necessitate cuts to other programs or increase the national debt, without clear evidence that it would substantially boost overall economic activity or labor supply.
The bill text is extremely short and can be read in under a minute, making it highly accessible for any reader to understand its core legislative change.
Section 2(a), inserting new Section 139J into Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986.
Exclusion of Overtime Compensation from Gross Income
This provision establishes that any compensation received by an individual for working overtime, specifically the overtime pay mandated by the Fair Labor Standards Act of 1938 (FLSA), will no longer be counted as part of their gross income for federal income tax calculations. This means that the additional earnings from working beyond standard hours will be exempt from federal income tax, directly increasing the take-home pay for eligible workers.
Supporters argue
Supporters argue this provision directly rewards workers for their extra hours and effort, putting more money into their pockets. They believe it incentivizes work and provides a tangible benefit to those who often rely on overtime to make ends meet or improve their financial standing.
Critics contend
Critics might contend that this provision creates a new tax loophole that could disproportionately benefit higher-income earners who receive substantial overtime, while providing less relief to those who rarely work overtime or are exempt from FLSA overtime rules. They would also point to the significant revenue loss for the federal government.
Tradeoffs
The provision balances the goal of increasing take-home pay for workers against the potential for significant federal revenue loss and questions of equitable benefit distribution across different income brackets and types of workers.