At a rally in Tucson, Arizona, on Thursday, President Donald Trump unveiled a bold tax reform proposal: the elimination of all taxes on overtime pay. This initiative is part of a broader set of tax cuts that Trump is advocating, and it has garnered significant attention, even prompting Vice President Kamala Harris to consider similar proposals.
“We will end all taxes on overtime,” Trump declared. “Think about what that means.”
Trump argued that removing taxes on overtime would encourage Americans to work more, as they would retain a larger portion of their earnings. He also suggested that businesses would benefit from improved recruitment and retention due to the increased financial incentive for employees.
“People who work overtime are among the hardest-working individuals in our country,” Trump continued. “For too long, Washington has neglected them. They are police officers, nurses, factory workers, construction workers, truck drivers, and machine operators. It’s time for the working men and women to finally catch a break.”
Under the Trump administration, a 2019 Labor Department rule expanded overtime pay eligibility to an additional 1.3 million workers by raising the salary threshold for exempt status. This rule mandated that employees earning less than a set amount would be entitled to overtime pay at 1.5 times their regular rate for hours worked beyond 40 in a week.
Despite the benefits to many workers, the rule faced criticism from some labor activists, Democrats, and media outlets, who argued that it did not go as far as some of President Barack Obama’s earlier proposals.
Building on Trump’s policy, the Biden administration announced in April 2024 a new rule that further increases the salary threshold for overtime pay exemption. By July 1, 2024, the threshold will rise to $43,888, and by January 1, 2025, it will reach $58,656.
Trump’s proposed tax policy would allow many workers to retain their overtime earnings without taxation, offering significant financial relief. This proposal, while unprecedented at the federal level, mirrors recent actions taken by Alabama, which became the first state to exclude overtime wages from state taxes, though this measure is temporary.
In addition to the overtime tax cut, Trump’s broader tax plan includes several other measures:
Exempting tips from income taxes.
Reducing the corporate income tax rate from 21% to 20%, and lowering it further to 15% for companies that manufacture goods in the U.S.
Making the 2017 individual income tax cuts permanent.
Considering a shift from personal income taxes to increased tariffs on imports.
Exempting Social Security benefits from income tax.
Imposing a 60% tariff on imports from China.
The Harris campaign has responded critically to Trump’s announcement. A spokesperson described Trump’s proposal as a desperate attempt to win votes, suggesting that he is scrambling and making unrealistic promises.
It remains to be seen if Harris, who has recently faced scrutiny for adopting policies from her former running mate, will incorporate Trump’s overtime tax proposal into her own platform.
