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Former President Donald Trump has proposed eliminating taxes on overtime pay, tips, and Social Security benefits if he is re-elected. This plan could significantly impact workers and businesses across the country. Here’s what you need to know about his proposals and their potential consequences.
How Overtime Pay is Currently Taxed
Overtime pay is currently taxed just like regular wages. That means it is subject to federal income tax, Social Security tax, and Medicare tax. The Fair Labor Standards Act (FLSA) requires that eligible employees receive at least 1.5 times their base pay for working beyond 40 hours a week.
According to Yale’s Budget Lab, 8% of U.S. hourly workers and 4% of salaried workers regularly work overtime, while an additional 4% of hourly workers and 1% of salaried workers do so occasionally.
Trump’s No-Tax-on-Overtime Proposal
Trump has expressed support for eliminating taxes on overtime pay, arguing that it would encourage people to work more hours and make hiring easier for businesses.
What We Know:
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Trump discussed this proposal at a campaign rally in Tucson, Arizona, in September 2024.
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He believes removing taxes on overtime pay will benefit hardworking citizens.
What We Don’t Know:
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The specifics of the proposal, such as whether both income and payroll taxes on overtime would be removed.
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The financial implications and how the government would offset lost revenue.
Reactions and Concerns:
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Supporters say the policy would reward hard-working employees and make overtime work more attractive.
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Critics argue that the move could reduce federal revenue by $1.7 trillion between 2026 and 2035, according to the Committee for a Responsible Federal Budget.
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The Tax Foundation warns that it could distort labor market dynamics, encouraging more overtime work and increasing employer labor costs.
Trump’s No-Tax-on-Tips Proposal
Along with overtime pay, Trump has proposed eliminating federal taxes on tips, an idea he said came from a waitress at his Las Vegas hotel.
What We Know:
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Trump first announced this plan in June 2024, saying it would be one of his first actions if re-elected.
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He has repeatedly promised to push this proposal through Congress.
What We Don’t Know:
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Whether the tax exemption would apply to both income tax and payroll tax.
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The impact on businesses and workers, particularly in the hospitality industry.
By the Numbers:
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The U.S. Bureau of Labor Statistics reports that there are 2.24 million restaurant servers in the country, many of whom rely on tips as a primary income source.
Trump’s No-Tax-on-Social-Security Proposal
Trump has also pledged to eliminate taxes on Social Security benefits for retirees, stating, “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” on Truth Social in July 2024.
Key Points:
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Currently, Social Security benefits are taxable if an individual earns over $25,000 per year ($32,000 for joint filers).
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The Social Security Administration warns that cutting these taxes could push the program toward insolvency by 2033, two years earlier than projected.
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Critics argue that without alternative funding, retirees could face reduced benefits in the future.
Final Thoughts
Trump’s tax-cut proposals on overtime, tips, and Social Security benefits aim to provide financial relief for American workers. However, concerns over lost revenue and economic consequences remain. Whether these policies will be implemented, and how they will be structured, remains uncertain. As the election nears, this will be a crucial topic for debate.
