There is no tax on Social Security. Tips are not taxed. And now there is no tax on extra. More people want to know how it will work out and how much it will cost.
Thursday, former President Donald Trump added a new selling point to his low- and no-tax platforms: he said that if he wins the election, he will not tax workers’ extra pay.
A Republican presidential candidate spoke to a crowd of cheering people in Tucson, Arizona. “People who work overtime are some of the hardest workers in our country, and for too long in Washington, no one has been looking out for them.”
“It’s time for working people to finally get a break,” he said. “That’s what we’re doing because this is a good one.”
Trump has already said that taxes shouldn’t be put on Social Security payments. He has also said that workers’ tip money shouldn’t be taxed. Vice President Kamala Harris, who is running against him, then made a similar claim.
As a reward for their hard work, Trump said his new tax plan would be good for workers because they wouldn’t have to pay taxes. His list of those jobs includes police officers, nurses, factory workers, building workers, and truck drivers. He also said that employers who want to keep workers who are ready to put in extra hours would benefit.
At the moment, the IRS doesn’t make a difference between regular wages and extra pay; it all gets taxed as regular income, along with tips.
Major tax rules are set to expire at the end of next year. Both candidates are talking about ideas that they say will help Americans who are having a hard time paying their taxes.
But people who don’t agree with Trump have said that his plan to avoid Social Security would cost a lot of money. They’ve also said that both Trump and Harris’s ideas for tip income are just cheap politics and bad tax policy.
The idea of not having to pay income tax on extra pay adds to the list of reasons people are against it.
For one thing, experts at the Tax Foundation, a think tank leaning to the right, say it could be pricey. The think tank says that, on the low end, not taxing overtime could cost $227 billion in lost income tax earnings over ten years. It could cost an extra $145 billion if the plan got rid of payroll taxes.
Erica York, a senior economist at the Tax Foundation, said, “There’s no good reason to treat income from overtime work any differently than income from your first 40 hours of work.” “It would create really crazy reasons to behave that way.”
Some foes on the left say that a high-level tax exemption would help bosses and higher-paid workers. Leaders of the company could also tell workers they are still getting a tax break if they work more hours.
Managers could also say that all employees were paid by the hour, which would keep high-level employees from having to pay income taxes on their pay.
“It’s not crazy to think that this policy could lead to a world where CEOs make $4,000 an hour plus $6 million in overtime,” Heidi Shierholz, a senior economist at the left-leaning group EPI Action, wrote.
It’s hard to figure out how much extra pay there really is in the United States. The Bureau of Labor Statistics only keeps track of overtime worked in industry. Last month, these workers put in an average of three hours of extra time.
However, almost 13 million people worked in industry in an economy that had almost 159 million jobs in August.
Some critics said that labor laws that are better for hourly workers would be a better way to help them. They said that this was stopped by Trump’s government, which was also said by a Harris campaign spokesman.
When contacted for response, the Trump campaign pointed to what Trump said on Thursday.
If an hourly person works more than 40 hours in a week, federal law says they should get at least their hourly wage plus a half. Some paid workers can get extra hours as long as they don’t go over a certain amount.
As a result of a rule finalized by the Biden administration’s Labor Department, that threshold now equals $43,888 a year. It will rise to $58,656 next year, according to Paul Sonn, director of NELP Action, a group that studies workers’ rights and policies.
Sonn said, “Like the idea of not taxing tips, the idea of not taxing overtime is a weak election-year stunt meant to take attention away from Trump’s real record.”
One conservative doubter said that broad tax breaks that block certain types of income are not the best way to get people to pay less in taxes.
A conservative think tank’s senior fellow Allison Schrager said, “If you’re worried about a certain class of worker or a certain income group, there are ways to do it without saying they shouldn’t pay taxes on this kind of work.” “Just in general, I don’t like not taxing some types of income.”
Schrager said that the other questions about not having to pay taxes on extra pay don’t really bother her. “It’s not like they are thrilled to pay people overtime,” she said of employers who would still have to pay more for the extra work.
Also, it’s not clear how the IRS would tell the difference between normal pay and overtime pay.
Employers have payroll systems that can tell the difference between regular pay and overtime, but Tom O’Saben, head of tax content and government relations at the National Association of Tax Professionals, said that the IRS would have to come up with its own ways to do the same thing.
“You’d have to start from scratch to figure out what compensation means,” he said.
