Are you and your business ready for the overtime tax break?

A Republican-backed domestic policy bill moving through Congress includes a significant tax break for hourly wage earners who work overtime. The benefit applies only to those who, under federal law, receive time-and-a-half pay for working over 40 hours per week—excluding most salaried workers.

The break isn’t full tax relief. Americans would still pay payroll and state income taxes on overtime earnings. Federal income taxes would be waived only on the 50% bonus portion of their overtime pay, meaning just a third of overtime income is tax-exempt.

Despite limitations, the White House Council of Economic Advisers believes the proposal could encourage Americans to work more and boost economic output. However, labor economists and policy analysts warn it could disrupt the job market. If more people chase jobs offering overtime, wages in those roles could decline. There's also concern that the policy might encourage employees to reclassify earnings or shift jobs solely to qualify for the break.

Critics say the proposal favors jobs with easily available overtime—like factory or warehouse work—over roles where extra hours are harder to schedule or aren’t legally eligible for overtime, like teaching or salaried administrative roles. Workers with multiple part-time jobs might exceed 40 total hours a week and still not qualify.

Moreover, companies may still limit overtime opportunities due to the additional pay costs, making the tax benefit irrelevant unless schedules are adjusted. “You can’t just say, ‘Give me overtime,’ and expect it to happen,” said Alex Brill of the American Enterprise Institute. “Schedules need managing.”

The policy may disproportionately benefit workers with flexible or self-managed schedules. A similar policy in France from 2007 to 2012 showed little change in actual work hours; instead, it allowed employees with flexibility to shift hours and optimize their tax bills—without increasing productivity.

The Republican bill caps eligibility at individuals earning under $160,000 and is set to expire in 2028. While Democrats currently oppose it, the potential popularity of the tax cut with working-class voters may change that stance over time. In Alabama, for instance, Democrats have pushed to retain a similar state-level tax exemption after Republicans let it lapse due to unexpected budget costs.

Supporters, like Rep. Jason Smith, argue the policy rewards hard work, citing examples like a worker earning $75,000 who could save $1,320 annually on taxes by working 300 overtime hours.

What Bon Vie Consulting Group Can Do for Impacted Organizations

For companies navigating the complexities of this potential policy change, Bon Vie Consulting Group offers strategic solutions to adapt effectively and ethically:

• Overtime Strategy & Compliance: BVCG helps organizations evaluate their job classifications, scheduling practices, and wage structures to ensure they comply with federal law while maximizing the tax benefits.

• Workforce Modeling: We design intelligent workforce models to predict overtime costs, availability, and productivity impacts—helping firms avoid unintended tax burdens or morale issues.

• HR & Operations Alignment: Our consultants facilitate the integration of tax-incentive strategies with HR policies and operational workflows, ensuring scheduling fairness, employee retention, and regulatory compliance.

• Change Management: When shifts in tax law impact employee behavior, Bon Vie provides leadership coaching, communication plans, and implementation frameworks to maintain trust, performance, and equity across teams.

• Financial Impact Assessments: We perform scenario modeling for CFOs and operations leaders, helping them anticipate the fiscal impacts of overtime exemptions on labor budgets, productivity, and workforce stability.

As public policy evolves, Bon Vie Consulting Group ensures your organization doesn’t just react to change—but capitalizes on it strategically.