Overtime Income Tax Exemption Act
The Overtime Income Tax Exemption Act provides financial relief to hourly employees by excluding overtime pay from state income tax. The legislation aims to incentivize productivity, reduce the tax burden on workers, and promote economic fairness. The exemption applies to overtime earnings exceeding 40 hours in a single workweek, with an annual cap of $10,000 per employee. Employers must report aggregate overtime pay information, and the Act includes a sunset provision requiring legislative review of its fiscal impact. Measures to mitigate revenue losses are also incorporated, ensuring fiscal responsibility.
Key Provisions
Overtime Pay Exemption: Overtime earnings exceeding 40 hours per week are exempt from state income tax, capped at $10,000 annually per employee.
Eligibility: Applies to full-time hourly employees earning overtime pay, as defined by the federal Fair Labor Standards Act (FLSA).
Reporting Requirements: Employers must annually report the total amount of overtime pay disbursed and the number of employees receiving it, using a simplified state-provided template.
Revenue Impact Mitigation: A fiscal review will be conducted after the first year of implementation to assess revenue impacts, with potential adjustments to tax rates or alternative revenue sources identified if necessary.
Model Language
Section 1. Short Title: This Act shall be known as the “Overtime Income Tax Exemption Act.”
Section 2. Purpose: The purpose of this Act is to reduce the tax burden on workers who earn overtime pay, incentivize productivity, and promote economic fairness for hourly employees.
Section 3. Definitions
(a) “Overtime pay” means compensation earned by an employee for hours worked beyond 40 hours in a single workweek, as defined by the federal Fair Labor Standards Act (FLSA).
(b) “Eligible employee” means any individual employed in a full-time, hourly wage capacity who receives overtime pay.
(c) “Employer” means any entity required to file tax withholding information with the state tax agency.
Section 4. Overtime Income Tax Exemption
(a) For taxable years beginning on or after [January 1, 202X], overtime pay earned by eligible employees shall be excluded from gross income for state income tax purposes.
(b) The exemption shall apply only to the portion of overtime pay earned in a single workweek exceeding 40 hours.
(c) The exemption is capped at [$10,000] of overtime pay per employee annually.
Section 5. Reporting Requirements
(a) Employers shall report the following information to the state tax agency annually:
Total amount of overtime pay disbursed during the tax year.
Number of employees receiving overtime pay.
(b) Employers shall not be required to submit detailed individual employee records to the state tax agency.
(c) The state tax agency shall provide a simplified reporting template to minimize administrative burden.
Section 6. Sunset Provision: This Act shall remain in effect until [June 30, 202Y], at which time the state legislature shall evaluate its fiscal impact and determine whether to extend or modify the exemption.
Section 7. Revenue Impact Mitigation
(a) To offset potential revenue losses from this Act, the state shall conduct a fiscal impact review after the first full year of implementation.
(b) The legislature may recommend adjustments to state tax rates or identify alternative revenue sources if a significant shortfall occurs.
Section 8. Severability: If any provision of this Act or its application is held invalid, the remainder of the Act shall not be affected.
Section 9. Effective Date: This Act shall take effect on [January 1, 202X].