Trump’s ‘no taxes on overtime’ proposal: What to know

What did Trump say?

Although he did not lay out the specifics of his plan, Trump said he was making the proposal to give “people more of an incentive to work.” This plan is similar to his “no tax on tips” proposal, which he announced earlier in his campaign, to stop collecting taxes on tipped wages.

“I’m also announcing that as part of our additional tax cuts, we will end all taxes on overtime,” Trump announced during a Tuscon, Arizona, rally Thursday. “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 continued. “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.”

Who would be affected?

It’s unclear exactly how many people in the United States currently work overtime or would be eligible for Trump’s proposal, should it come to fruition. 

According to the Bureau of Labor Statistics estimates for 2023, 34.4 million people were both hourly and salaried employees and worked more than 40 hours a week. Many of those workers, though, are not eligible for overtime.

In terms of the number of overtime hours worked, the Bureau of Labor and Statistics only tracks data on overtime in the manufacturing sector. Its data show that the average number of hours worked overtime for those in manufacturing jobs is three hours a week.

The Tax Foundation estimated that $150 billion was paid in overtime in 2023.

“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 Washington Examiner.

Would workplace and employer behavior change? 

Many experts believe Trump’s proposal would change how employees and employers operate. 

Employees may be incentivized to work more overtime hours, which in turn could mean their employer would slow down hiring and job creation, and have fewer employees work longer hours.

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.”

What would it cost the government?

According to estimates from the Tax Foundation, the government would lose $227 billion over 10 years, which is on the lower end of estimates because it does not account for behavior change from employees and employers. 

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Trump’s proposal did not go into specifics of the plan, but if taxes on overtime work were also exempt from 6.2% Social Security tax and 1.45% Medicare tax, the Tax Foundation estimates, the government would lose an additional $145 billion over 10 years. This again is on the lower end of estimates because it does not take into account any behavioral change from employees and employers.

According to the Tax Foundation, Trump’s no tax on overtime proposal would increase his so far promised $6.1 trillion in tax cuts to $6.4 trillion. It would also raise the total deficit increase of all of his tax and tariff plans to $1.6 trillion over 10 years.