A bill for an act excluding overtime from the individual income tax, and including applicability provisions.

House File 360, introduced in the Iowa General Assembly on February 12, 2025, proposes to exempt overtime pay from state individual income tax. Specifically, it allows taxpayers to exclude from their taxable income the portion of compensation earned for hours worked beyond 40 in a workweek, provided this overtime is paid at a rate between 1.5 and 2 times the regular hourly rate. If enacted, this exemption would apply to tax years beginning on or after January 1, 2026.

Supporters of HF360 argue that exempting overtime pay from state income tax would provide financial relief to hardworking Iowans who put in extra hours. They believe this measure could incentivize employees to work additional hours, thereby boosting productivity and supporting the state's economy. Proponents also suggest that the tax exemption could help alleviate the financial burden on middle-class families, allowing them to retain more of their earnings.

Critics of HF360 express concerns about potential revenue losses for the state, which could impact funding for public services such as education, healthcare, and infrastructure. They argue that the bill might disproportionately benefit higher-income individuals who have more opportunities for overtime work, potentially exacerbating income inequality. Additionally, some opponents question whether the tax exemption would effectively encourage additional work hours or if it might lead to unintended consequences in the labor market.