Keeping an Eye on the Proposed KEEP Act

Earlier this month, proposed legislation cited as the Keep Every Extra Penny Act of 2024 (KEEP Act) was introduced to eliminate income taxes on overtime pay. The purpose of this Act is to amend the Internal Revenue Code of 1986 and exclude overtime compensation from gross income for purpose of the income tax.  

While the KEEP Act is just proposed legislation, many of our business clients pay overtime to their employees.

The KEEP Act could be beneficial as the elimination of income taxes may help retain talent with a boost in overtime pay for employees as high inflation levels continue to be a burden.

Idaho Congressman Russ Fulcher, who introduced this legislation, said “by eliminating income taxes from overtime pay we can help alleviate this burden for hardworking folks by letting them keep more of what they earn while continuing to safeguard government programs such as Medicare and Social Security.”

The overtime pay exclusion impacts only federal income tax, and overtime pay would continue to be subject to Social Security, Medicare, and unemployment taxes. The bill mirrors an Alabama law that took effect on 1/1/24 that excludes overtime pay from state income tax. Also similar to Alabama law, the House bill was proposed in response to an ongoing labor shortage.

Background of KEEP Act

• The KEEP Act will eliminate income taxes rather than payroll taxes to ensure that Social Security, Medicare, and unemployment funding remain unaffected.
• Individual income taxes accounted for 49% of all federal revenue in 2023 according to CBO data.
• Americans currently eligible for overtime, as defined in the Fair Labor Standards Act under section 7, will be covered under the KEEP Act. 
• The Fair Labor Standards Act lead to the establishment of overtime and the 40-hour work week during the Great Depression to provide relief to both the employee and employer. The KEEP Act aims to amplify this relief while our nation faces similar circumstances.

To read the entire bill, please click here.

To read the press release, please click here.

As always, should you have questions on this or other matters affecting you or your business, please call  or email us to speak with a CPA today.

DISCLAIMER: The WM Update, WM Wednesday Wisdom, WM Daily Update, and other related communications are intended to provide general information, as of the date of this communication, and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.