The One Big Beautiful Tax Bill Proves Why the FLSA Is Still the Most Important Law Enacted By Congress

The FLSA is "the most far-reaching, far-sighted program for the benefit of workers ever adopted here or in any other country….”

--Franklin D. Roosevelt, upon signing the bill into law.

There are many candidates for the legislative hall of fame – some that come to mind quickly include the Civil Rights Act of 1866, after the Civil War; the 1931 enduring Davis-Bacon Act; and the landmark 1964 Civil Rights Act (especially Title VII thereof...). But my own personal favorite for most important legislation affecting the greatest number of people is the Fair Labor Standards Act (“FLSA”) of 1938. The FLSA set the federal minimum wage, the requirement to pay premium overtime, eventually the standard 40-hour work week (albeit 44 hours originally), child labor regulation, and the working time rules that must be observed by most employers, all of which makes it perhaps the seminal piece of labor legislation coming out of the latter part of the New Deal era.

The continued relevance of the FLSA is emphasized by Trump’s “One Big Beautiful Tax Bill” just enacted and signed into law on July 4, 2025. The tentacles of the FLSA reach through the corridors of time to shape Trump’s “No Tax on Overtime” pledge. The new tax law is targeted to deliver a $90 billion dollar tax break through 2028 to Trump’s working class constituency.

Under the new tax law, the extra one-half premium pay portion of the overtime pay formula qualifies  for a new deduction. Workers still have to pay taxes on the basic straight-time portion of their pay including for hours worked in excess of 40 hours in a week. You work overtime and get paid time and one-half  for your effort, but only the extra one-half compensation earns you a tax deduction, if you are even eligible. Just the premium pay co-efficient portion of one-half qualifies for a deduction if it is required by the FLSA. Thus, the FLSA is the talisman of the new tax law.

For example, if you are receiving overtime premium pay which is not required by the FLSA,  like the extra compensation is paid to airline employees, railroad workers and many other employees  (including those professional or administrative) exempt from the FLSA, then you don’t get a tax deduction. Those workers covered by the Railway Labor Act exception to the FLSA coverage thus are left behind. The not so beautiful provisions of  the Act also thus exclude premium daily overtime required by state laws like California or Alaska. If you get double overtime pay by union contract or California state law, this deduction will not protect that excess premium from taxation. That overtime premium is not a FLSA requirement. Accordingly, not all overtime pay is subject to the tax break, proving yet again that the devil is in the tax details. .

The overtime pay deduction is also capped at $12,500 a year for individuals and $25,000 for married couples. However, it is available even if they take the standard deduction and do not itemize. Once the yearly income reaches $150,0 00 for individuals and $300,000 for married couples, the tax break starts to phase out. And because overtime premium pay is income to the worker, social security (FICA) and Medicare taxes are still due the tax man.

The Wall Street Journal reports that about 9% of the households in the country will benefit from the overtime deduction and get an average tax break of $1,440. See WSJ at page A-3 (August 1, 2025). Presumably, that is a potent  political gift to the affected workers and meant to cement their loyalty to the MAGA movement.

The U.S. Treasury Department must issue guidance to help harmonize the proviso for only FLSA covered  premiums and tell employers how to report the income. Apparently, the W-2  form process to report income will remain the same, and  a new separate payroll statement will be required to allow workers to claim the overtime pay tax deduction. This guidance is supposed to appear sometime in early 2026. Lawmakers reputedly tied the new overtime break to the FLSA since it is a time-worn federal standard that is well-known and ubiquitous. Given all the ambiguities inherent in the FLSA, however, we will see how that plays out in the tax laws as we go.

While the FLSA minimum wage has been eroded by the failure of Congress to keep up with the rate of inflation in recent times, the One Big Beautiful Tax Bill makes it plain that the overtime provisions of the FLSA remain relevant here in the modern era. Thus, now about 87 years old, the FLSA still remains at the center of American life.