Trump is moving to remove tax on overtime, here’s what that could mean

President Donald Trump has put forward a slew of tax reforms that could benefit millions of Americans. From removing taxes on tips to cutting taxes from social security benefits, his policies could put cash back in Americans’ coffers. Trump supporters across the country are celebrating what they perceive as massive savings, but experts aren’t so sure. What are Trump’s intended tax changes, and how might they affect American wallets?

Trump’s no tax on overtime plan, explained

“We will end all taxes on overtime,” Trump told supporters during a September rally in Tucson, Arizona. His administration has consistently asserted that it will end overtime tax for Americans working more than 40 hours a week, arguing that eliminating tax on overtime would incentivize work and make it easier to find employees. “That gives people more of an incentive to work. It gives the companies a lot. It’s a lot easier to get the people,” he said. Outside of his campaign promises, Trump’s team has been fairly mum about practical application.

Data provided by the Department of Labor shows that nearly 98 million Americans worked overtime last year. 83 million — about two-thirds — held hourly positions, while the remaining 15.6 work salaried jobs. It’s important to note that while employees may technically be eligible for overtime under the Fair Labor Standards Act (FLSA), it doesn’t mean those employees are getting paid for their time. Employers use this loophole to steal billions from workers every year — an average of $64 dollars per paycheck — and 70% of salaried employees aren’t even eligible for FLSA.

The administration’s secret playbook, Project 2025, has an entire subsection blasting overtime and opposes expanding overtime protections. It says, “Congress should provide flexibility to employers and employees to calculate the overtime period over a longer number of weeks,” phrasing that sparked concern in the Center for American Progress. It responded saying that approach would likely “put more power in the hands of employers to exploit employees,” which it says seems to be the project’s bottom line.

Trump isn’t the first Republican to put forth the idea of no tax on overtime. Congressman Russ Fulcher (R-ID) introduced The Keep Every Penny (KEEP) Act in July 2024, and at least two states have made attempts to exempt overtime pay.

What will Trump’s tax plan do to taxes?

How Trump’s plan will impact taxes is still unclear. His administration has been throwing around the idea of eliminating income tax altogether, but there is little policy work to show how this might be accomplished. Trump’s critics, however, have been quick to point to the revenue loss his plan comes with.

The loss of overtime tax is projected to reduce revenue by as much as $3 trillion over the next ten years. The Tax Foundation think tank predicts that it will “significantly distort labor market decisions” by encouraging employees to take on more overtime, and warns that it could raise employer labor costs.

How the tax exemption will come to pass has raised concerns from experts. Joseph Rosenberg, senior fellow at The Urban-Brookings Tax Policy Center, told CNBC that while a payroll exemption will help lower-income Americans, the future repercussions to their Medicare and Social Security benefits may make any gains moot. Though relying on metrics from Social Security and Medicare may be useless, as Trump’s administration is eyeing potentially dissolving the programs.

Established in 1938, the FLSA is one of the most powerful components of the New Deal reforms. It outlawed child labor, established the federal minimum wage, created the 5-day work week, instituted weekends, and forced companies to pay at least 1.5 times their pay rate for hours beyond the typical 40-hour work week. It set the minimum wage to 50% of the median wage, while overtime equaled out to 1.5x the median rate and led employees to believe they deserved that higher rate — and companies were incentivized to hire more employees or risk overspending.

Overtime pay allowed a robust middle class to form by the early 1970s, one that shielded Americans from exploitative companies while incentivizing employees to put in extra hours. By 1975, however, Congress stopped safeguarding the minimum wage, slowly allowing it to be devoured by inflation. Nowadays, the overtime threshold is a meager 67% of the median wage, rather than 1.5x, and anyone who makes over $35,568 — roughly 85% of Americans — is classified as exempt from overtime pay. That means this no-tax-on-overtime push will only meaningfully impact about 8% of hourly workers, and 4% of salaried employees.

The overtime that once saved American wallets is now draining their energy. A 2019 Gallup Poll showed that more than half of full-time employees work more than 40 hours a week, but that means little in the face of inflation. According to Visual Capitalist, the poor American needs to work 80 hours per week to escape poverty, 27 hours more than the next listed country, Latvia, and nearly 200 hours more than their parents did in 1979.

To break it down: Americans are working longer hours with absolutely no promise of getting overtime pay. While Americans struggle to find childcare for those extra hours, employers are reaping millions of dollars in tangible benefits — and estimated 17k in stolen wages per worker. It’s not the taxes that are squeezing out the middle class; it’s employers.