Tired of getting taxed on overtime? Here’s what you need to know about the bill that’s got bipartisan support in Pa.

A founding member of the conservative Pennsylvania House Freedom Caucus and some Philly Democratic representatives agree: Overtime shouldn’t be taxed in Pennsylvania. They’re making their case this week as budget negotiations unfold in Harrisburg.

State Rep. Morgan Cephas, a Democrat who represents parts of West Philadelphia, is the primary sponsor of a bill that would create a tax deduction for overtime pay in Pennsylvania. She presented the bill to the House Finance Committee on Monday.

The bill is cosponsored by 10 Democrats, half of whom represent Philadelphia, and one Republican: Rep. Robert Leadbeter, the leader of the state House Freedom Caucus, who represents Columbia County. The caucus is modeled after the U.S. House Freedom Caucus, which is allied with President Donald Trump.

The bill, while heavily backed by Democrats, represents a desire to ease some tax burdens on working-class Americans in a way that appeals to both parties. That could come in handy in Harrisburg, where Republicans lead the Senate and Democrats lead the House.

“Any opportunity to reduce the tax burden on hard working Pennsylvanians is something that I will always be an advocate for,” Leadbeter said in an interview.

The measure mirrors a piece of Trump’s One Big Beautiful Bill Act, which was passed by the U.S. House with support from the vast majority of Republicans and no Democrats. That provision in the federal tax bill would deduct overtime pay from federal returns for eligible workers through 2028.

“Pennsylvania is the only state with a divided legislature, which requires us to be intentional and collaborative when moving policy and legislation, and this is one of those issues that I believe we can work collaboratively on,” Cephas said.

While the concept of the bill is to remove tax on overtime work, it’s modeled like a tax deduction.

This means that employers would still withhold state tax on overtime work. Employees can then deduct their overtime pay from their annual income when they file their state tax return — which can result in a refund if they don’t otherwise owe taxes.

Because the state’s tax rate is 3.07%, workers would save $307 in taxes for every $10,000 of overtime.

The dedication is for employees who are already eligible for overtime pay and does not expand eligibility.

Cephas said that at least 15 other states are considering a similar measure.

Alabama passed one in 2023 with bipartisan support, but it sunsets this month.

Cephas argued that the policy could attract workers to fill in-demand jobs in the state, such as registered nurses, home health care aides, and public safety workers. She also said that the extra money will promote economic mobility for low- and middle-income workers.

“Given the high cost of living in Pennsylvania and the demand for workers, now is the time to consider measures that will help working families by putting money in their pockets while simultaneously making us more competitive as a state for our workforce,” she said on Monday.

Regina Hairston, the president and CEO of the African American Chamber of Commerce for Pennsylvania, New Jersey, and Delaware, testified on Monday that the policy would provide a “meaningful financial benefit” at the end of the year even though the benefit won’t be immediately available.

“For many hourly employees, overtime is not a luxury; it’s essential,” Hairston told the committee. “This bill provides relief in a way that represents and rewards that reality.”

Malik Brown, the president and CEO of the nonprofit Graduate Philadelphia, made the case that the policy would increase productivity and competition for workers, encourage more consumer spending, and help companies retain staff and reduce costs of turnover and training.

“In today’s economy there are far too many hardworking Pennsylvanians who have no choice but to take on extra hours to meet basic needs,” Brown told the committee. “ … [W]hether it’s to cover rising housing costs, afford childcare, or simply keep up with everyday essentials, working overtime is no longer about getting ahead; it’s become a lifeline.”

While the bill would put more money into workers’ pockets, that’s money that’s not going to the state’s coffers.

Cephas responded to this criticism by saying that the money would be used to stimulate the economy by increasing workers’ disposable income.

But the already-tested program in Alabama was more costly than anticipated. An Alabama Department of Revenue report found that the state’s overtime tax-exemption policy cost the state $230 million from January through September last year, according to AL.com.

Cephas said legislators could address concerns surrounding the cost to the state by limiting the amount of money that can be tax-exempt for each worker.

Rep. Leslie Rossi, the Republican secretary for the Finance Committee who represents parts of Westmoreland County, expressed some concerns about encouraging overtime work. She said that she knows of a company whose employees filed for unemployment once it no longer needed them to work overtime and they weren’t getting paid as much and that she’s concerned about employees losing their jobs if they refuse to work overtime. The bill does not address these issues.

“I’m all for overtime, my dad worked seven days a week in a steel mill. … I’m familiar with how that can benefit a family, but this unemployment issue is something we definitely need to talk about,” Rossi said.

After the hearing on Monday legislators were expected to mull over or negotiate the bill before a potential vote in the coming weeks.

But the bill’s fate took a turn on Tuesday when legislators decided to amend it into a larger bill that will also absorb a bill sponsored by State Rep. Elizabeth Fiedler (D., Philadelphia) that would require multistate corporations to report combined income to Pennsylvania and pay the state’s corporate net income tax based on that, along with other measures.

“We will see if the intent of the bill is preserved when the final floor vote comes about,” Leadbeter said as to whether other Republicans would support it.

And despite its Trump ties, the bill has a less likely future now, as State Senate Majority Leader Joe Pittman (R., Indiana) said last week that the combined reporting proposal would make the state less competitive.

“We’re focused on truing to attract more employers to the commonwealth, get them to grow, not dissuade them from making an investment,” Pittman told reporters last week. “And that seems to me what the combined reporting approach would be.”

This story was updated to include details on Tuesday’s vote and comments from Rep. Robert Leadbeter.

Staff writer Gillian McGoldrick contributed to this article.