A bill for an act excluding overtime pay from the individual income tax, and including applicability provisions.(Formerly HF 110.)
The bill is set to take effect for tax years beginning on or after January 1, 2026. If enacted, this change could significantly impact the financial landscape for Iowa residents, particularly those who regularly work overtime. Proponents of the bill argue that exempting overtime pay from income taxation will incentivize more employees to work extra hours, thereby increasing productivity and income retention at the individual level. This intended benefit aligns with a broader objective of enhancing the economic well-being of working families.
House File 1024 is proposed legislation aimed at excluding overtime pay from individual income tax calculations. By amending Section 422.7 of the Iowa Code, the bill specifies that compensation earned for overtime, defined as pay at not less than one and one-half times the regular rate under the Fair Labor Standards Act (29 U.S.C. 207), will be exempt from state individual income tax. This legislative move aims to provide financial relief to workers who earn overtime by not subjecting their additional income to state taxation.
Notably, discussions surrounding HF1024 may encompass points of contention regarding the implications of tax policy changes on state revenues. Opponents may voice concerns that exempting overtime pay from taxation could lead to decreased funding for public services and could disproportionately benefit higher-income individuals who are more likely to earn overtime. Additionally, questions of fairness and the potential impact on state-funded programs might arise, emphasizing the need for a thorough examination of how such tax exemptions influence overall economic equity and state budget planning.