Trump’s Plan to Cut Taxes on Overtime Pay: A Hidden Catch?
Sounds Great, But Is There a Catch?
Imagine working extra hours and keeping every penny of your overtime pay instead of losing some to federal taxes. Sounds like a win, right? That’s exactly what Donald Trump is proposing—no federal income tax on overtime pay. At first glance, it seems like a huge financial boost for workers, but what if it actually led to fewer overtime opportunities?
While the idea is designed to put more money in workers’ pockets, it could have unintended consequences that might leave many people with less overtime or no overtime at all. Let’s break down why this might not be the game-changer it seems to be.
How the Policy Works
Right now, when you work overtime (anything over 40 hours per week), you get paid time and a half—meaning if your regular hourly wage is $20, your overtime pay is $30 per hour. Under Trump’s proposal, the money you earn from those extra hours would no longer be taxed at the federal level, meaning a bigger paycheck.
On paper, that sounds great. But here’s the problem: employers don’t have to offer overtime.
Why Employers Might Cut Overtime Hours
If overtime pay becomes tax-free, more workers might want to take on extra shifts. But businesses still have to pay 1.5 times the regular wage for overtime—and that costs them money.
So, how might companies respond?
Cutting Overtime Altogether
- Employers might decide that overtime is too expensive and simply stop offering it.
- Instead of paying existing employees overtime, they could hire more part-time workers at regular pay to cover extra hours.
- This means workers who rely on overtime to boost their income could lose those opportunities.
Rearranging Work Schedules
- Companies might spread hours across more employees to avoid paying anyone overtime.
- Example: Instead of giving one worker 50 hours a week (10 hours of overtime), an employer might split the work between two employees, giving each 40 hours to avoid overtime pay.
Shifting to Flat Salaries
- Some employers might convert hourly workers to salaried positions where they don’t qualify for overtime at all.
- This could leave workers doing the same amount of work but earning less per hour.
Could It Actually Mean Smaller Paychecks?
For those who regularly work overtime, this policy could backfire if their employers eliminate or limit overtime hours. In other words, you might not see a bigger paycheck—you might just work fewer hours.
For example:
- If you normally work 10 hours of overtime per week at $30/hour, you earn $300 in overtime pay.
- Without this policy, you take home around $230 after taxes.
- With this policy, you’d take home the full $300—but only if your employer still gives you overtime.
- If your employer cuts your overtime, you might end up making less overall than before.
Who Actually Benefits?
- Workers who can still get overtime will see bigger paychecks.
- Employers might save money by shifting hours around instead of paying higher wages.
- The government will collect less tax revenue, which could lead to budget cuts elsewhere.
But if fewer workers get overtime, the ones who rely on it the most could actually lose out.
Final Thoughts: Be Careful What You Wish For
While the idea of tax-free overtime sounds great, the reality is that employers control work hours—not workers. If businesses react by limiting or eliminating overtime, workers won’t see the benefits they were expecting.
Before celebrating this policy, it’s important to ask: Would you rather have more take-home pay, or make sure you actually get overtime in the first place? Because if companies start cutting hours, this policy might do more harm than good.
What do you think? Would this policy help workers, or would businesses just find ways around it? Drop your thoughts in the comments!
🍺 Enjoying the insights?
Buy me a beer & keep the intel flowing:
🍻 Buy Me a Beer.