What's Happening?
President Trump signed a budget megabill in July 2025 that includes a 'no tax on overtime' provision, aimed at reducing federal income taxes for workers who earn overtime pay. However, a report by Policy Matters Ohio, a left-leaning policy group, indicates
that this benefit will not significantly impact the majority of Ohio workers. According to Bailey Sandin, Policy Matters Ohio’s Work and Wages Fellow, more than 90% of Ohio workers will not benefit from this proposal. The deduction primarily aids households with annual incomes between $100,000 and $500,000, while those earning above $300,000, or $150,000 if filing single, will see reduced benefits as the deduction phases out before reaching the income cap. The provision allows employees to deduct only the additional portion of their overtime pay from federally taxable income, which is set to expire in 2028.
Why It's Important?
The 'no tax on overtime' provision is part of a broader effort to provide tax relief to American workers. However, the limited scope of its benefits raises questions about its effectiveness in addressing income inequality. The policy primarily benefits higher-income households, potentially exacerbating existing disparities. For most Ohio workers, the expected tax savings are minimal, with only about nine percent seeing a decrease of approximately $1,440. This highlights a potential disconnect between the policy's intent and its real-world impact, particularly for lower-income workers who rely heavily on overtime pay. The provision's temporary nature also suggests that any relief it provides is short-lived, necessitating further policy interventions to achieve more equitable tax relief.
What's Next?
As the 'no tax on overtime' provision is set to expire in 2028, there may be calls for its extension or modification to better serve a broader range of workers. Policymakers and advocacy groups might push for adjustments that ensure more equitable benefits across different income levels. Additionally, the ongoing analysis of the 'no tax on tips' benefit, also included in the same legislation, could influence future legislative efforts. Stakeholders, including labor unions and worker advocacy groups, are likely to engage in discussions to advocate for more comprehensive tax reforms that address the needs of lower-income workers.
