Tag: Tax

  • House Passes Reconciliation Bill With “No Tax on Overtime” Proposal – CUPA-HR

    House Passes Reconciliation Bill With “No Tax on Overtime” Proposal – CUPA-HR

    by CUPA-HR | June 17, 2025

    On May 22, the U.S. House of Representatives passed H.R. 1, titled the “One Big Beautiful Bill Act.” Notably, the reconciliation “megabill” includes a provision to implement President Trump’s campaign pledge on “no tax on overtime,” among various legislative priorities for Republicans.

    The “No Tax on Overtime” Proposal

    The overtime proposal creates a temporary above-the-line deduction from gross income for overtime pay required under the Fair labor Standards Act (FLSA). The bill does not set a cap on the amount of overtime pay that can be deducted, but it limits the application of the provision to employees who earn less than $160,000 per year, and it does not extend the deduction to independent contractors. If signed into law, the deduction will be available for tax years 2025 through 2028, and employers would be required to report overtime compensation on workers’ W-2 forms during this time.

    The proposed deduction only applies to workers’ federal income taxes and overtime pay as required by the FLSA, raising some compliance concerns for employers in states with different overtime pay requirements than those required under the FLSA and for employers whose overtime pay requirements are set by a collective bargaining agreement (CBA) with overtime pay that differs from the FLSA requirements. These employers will likely need to track both the FLSA-mandated overtime hours and pay to ensure workers’ W-2s are accurate and in compliance with the law while also ensuring they are tracking the overtime hours and pay in a manner that also complies with the more stringent state or CBA obligations.

    While CBA requirements vary case-by-case, there are five states with overtime pay requirements under their state wage and hour laws that differ from the requirements under the FLSA:

    • Alaska requires 1.5 times workers’ regular rate of pay for hours worked beyond 8 in a day or 40 in a workweek;
    • California requires 1.5 times an employee’s regular rate of pay for hours worked more than 8 in a day, 40 in a workweek, or the first 8 hours on a seventh consecutive day of work in a workweek. The state also requires double an employee’s regular rate of pay for any hours worked over 12 in a day or for all hours worked over 8 on a seventh consecutive day of work in a workweek;
    • Colorado requires overtime pay after 12 hours worked in a day or 40 hours in a workweek;
    • Nevada requires overtime pay for any hours worked beyond 8 in a day if the employee earns less than 1.5 times the state minimum wage; and
    • Oregon has industry-specific daily overtime rules that apply to hospitals, canneries and manufacturers.

    Looking Ahead

    The reconciliation bill is still early in the legislative process. For now, the “no tax on overtime” provision is only included in the House version of the bill. The Senate is currently drafting its version of the reconciliation bill, and they may choose to alter the no tax on overtime proposal — possibly including language of the Overtime Wages Tax Relief Act that was introduced earlier this year by Senator Roger Marshall (R-KS). CUPA-HR will continue to monitor for further developments on this issue.



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  • Senate Outlines Plans for Endowment Tax Hike

    Senate Outlines Plans for Endowment Tax Hike

    The Senate Committee on Finance is proposing to raise the endowment tax on private colleges and universities, but not to the extent the recently passed bill in the House calls for, according to a draft plan released Monday.

    The less dramatic excise tax tops out at 8 percent for the wealthiest institutions, compared to 21 percent in the House plan, but the Senate’s proposal keeps the House’s tiered rate structure, with some colleges paying more depending on the value of their endowment per student. The current rate for affected institutions is 1.4 percent.

    Institutional lobbyists and college presidents have warned that the sharp increase in the House plan would hurt their ability to provide need-based aid and be debilitating for some low-income students. Although the Senate’s iteration offers some relief, it’s not as much as they hoped for.

    “The Senate version of the so-called endowment tax is better, but it’s still bad and harmful tax policy,” said Steven Bloom, assistant vice president of government relations​​ at the American Council on Education. “They’re going to take money that would likely have been devoted to financial aid and research and other academic purposes on campus, and they’re going to send it to Washington, where it’s used largely for purposes unrelated to higher education.”

    The Senate committee’s plan, like the House proposal, also still exempts religious colleges and requires colleges to take international students out of the total roll call when calculating the endowment’s value per student. If passed, this stipulation would increase the tax rate significantly for institutions like Columbia University that have 20 percent or more foreign students.

    The finance committee legislation, which also includes cuts to Medicaid that could put pressure on states’ budgets, is part of a broader package of bills that would make significant changes to higher education policy and cut spending and taxes in order to pay for President Donald Trump’s priorities, which include increased deportations and tax cuts for the wealthy. The House version of the reconciliation bill known as the One Big Beautiful Bill Act passed by a one-vote margin last month. Senators are aiming to pass their version by July 4 and only need 51 votes thanks to the reconciliation process, as opposed to the traditional 60 votes.

    Unlike the House proposal, colleges that don’t accept federal financial aid would be exempt from the tax entirely. Hillsdale College president Larry Arnn blasted the House plan in an op-ed last month as an attack on the institution’s independence. (Hillsdale doesn’t participate in the federal financial aid system.)

    “The resources entrusted to Hillsdale College are not drawn from the public treasury,” Arnn wrote. “They are given freely by those who believe in our mission. To tax these gifts is to tax philanthropy itself—to burden those who would lift burdens. It is to weaken those who do good precisely because they are free to do it. It weakens them and strengthens the federal government, reversing the order intended by our Founders.”

    Hillsdale wasn’t the only college that pushed back on the rate increase. In recent weeks, private institutions big and small have pitched their own alternatives to Congress.

    Some of the largest and wealthiest research institutions that would be affected by the tax—such as Harvard, Stanford and Princeton Universities—pledged to spend 5 percent of their endowment’s value annually in exchange for a much lower 2.4 percent endowment tax rate, The Wall Street Journal reported. Bloom agreed that if the tax is to increase, he would like to see some kind of incentive introduced, like financial aid spending thresholds, to mitigate the tax rate.

    “They’ve created no incentive for schools to behave in ways that we believe that they would want schools to behave,” he said.

    Other institutions suggested that the tax rate should be based on what percentage of endowment revenue an institution spends each year on student financial aid or how many students enrolled come from a low-income background and receive the federal Pell Grant.

    A coalition of 24 smaller institutions, including Grinnell and Davidson Colleges, which would be hit hardest by the House endowment tax, proposed adjusting the excise rate based on the number of students enrolled. Colleges with fewer than 5,000 students have a different economic model than an institution with 30,000, they said.

    Grinnell president Anne Harris, who spent part of the last week educating lawmakers about the harm of the increased endowment tax, said Monday evening that the Senate plan still disproportionately burdens smaller institutions. She noted that her institution will likely still face the maximum 8 percent tax.

    “I deeply appreciate all the work that’s gone on and clearly all the consideration that has informed what we’re seeing this afternoon, but having said that, the current proposal still disproportionately burdens small colleges,” Harris said. “You’re going to find a school like Grinnell College with 1,700 students, a small college in a rural setting, bearing a much greater burden of this tax than a research institution in a large city.”

    She could only speculate that senators stuck with a tiered structure for simplicity, but added that “the simple fix” would be to make a stipulation that places all small private colleges in the lowest bracket and maintain the current 1.4 percent tax rate.

    Harris is hopeful that there will still be further opportunities for compromise and said she will continue to advocate for small liberal arts institutions like her own. But in the meantime, her executive team will also continue to plan out all the possible scenarios to figure out the best course of action to protect student aid if the bill passes as it currently stands.

    “All responsible options that provide the most money for financial aid and mission fulfillment are on the table as part of our scenario planning with the board,” she said.

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  • Sen. Marshall Proposes Legislation to Fulfill Trump Campaign Pledge on “No Tax on Overtime” – CUPA-HR

    Sen. Marshall Proposes Legislation to Fulfill Trump Campaign Pledge on “No Tax on Overtime” – CUPA-HR

    by CUPA-HR | May 12, 2025

    On May 6, Senator Roger Marshall (R-KS), along with Sens. Tommy Tuberville (R-AL), Jim Justice (R-WV), and Pete Ricketts (R-NE), introduced the Overtime Wages Tax Relief Act, which is intended to fulfill President Trump’s campaign promise to eliminate taxes on overtime pay. The proposal provides an income tax deduction for overtime pay up to a certain threshold. Marshall explained that his goal with the legislation was to target the benefit to lower- and middle-income workers in industries and occupations that traditionally pay overtime.

    Under the proposal, individuals would be able to deduct up to $10,000 of overtime pay from their income taxes. For married couples, the cap would be set at $20,000. This is an “above-the-line” income tax deduction, so workers would have the ability to claim the deduction whether they itemize their deductions or take the standard deduction.

    Additionally, the proposal phases out the benefit for top earners, identified as individuals earning $100,000 or more and married couples earning $200,000 or more. The deduction is reduced by $50 for every $1,000 in income the individual or married couple earns above their respective threshold.

    The legislation also includes reporting obligations for employers “to ensure transparency and accuracy in claiming the deduction.” Employers will be required to report overtime earnings to employees in their annual wage and tax statements.

    Marshall is hoping to have the legislation included in the Republican’s fiscal year 2025 budget reconciliation bill, which is expected to cover everything from border security to extensions for the expiring 2017 tax cuts President Trump signed into law during his first term.

    CUPA-HR will keep members apprised of additional updates on this bill and others related to overtime laws and regulations.



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  • House Republicans Propose Significant Endowment Tax Increase

    House Republicans Propose Significant Endowment Tax Increase

    Efforts to raise endowment taxes are in motion as the House Ways and Means Committee reportedly plans to unveil changes next week that will increase rates and include more colleges.

    Education leaders have worried about such a rate increase for months. Now the GOP-led committee is expected to propose raising endowment excise taxes from 1.4 percent to up to 21 percent, depending on endowment value per student, Punchbowl News, Politico and other outlets reported. 

    The proposed endowment tax would only apply to private institutions, as it does currently.

    Under the proposed formula, institutions with endowments of $750,000 to $1.25 million per student would reportedly be hit with 7 percent excise tax. That number would climb to a 14 percent tax for colleges with endowments valued at $1.25 to $2 million per student. Colleges at the highest level with endowments of $2 million or more per student would pay 21 percent. (Currently, colleges with endowments worth $500,000 per student or more pay the 1.4 percent tax.)

    The specifics of the tax increase aren’t final and could shift before the committee’s hearing Tuesday.

    Republicans are preparing to move forward with endowment tax increases as part of a broader effort known as reconciliation to cut billions in federal spending and pay for President Donald Trump’s priorities. Other House committees have unveiled their proposed cuts for reconciliation, including a sweeping plan to upend the student loan system, but the Ways and Means bill is crucial to this process.

    GOP motivations for the tax increase appear to be twofold in that it would help fund tax cuts and serve as a punitive measure for colleges they believe have gone “woke.” In 2023, a total of 56 universities paid roughly $380 million in endowment excise taxes.

    “Seven years ago, the Trump tax cuts sparked an economic boom and provided needed relief to working families,” committee chairman Rep. Jason Smith, a Missouri Republican, said in a Friday statement. “Pro-family, pro-worker tax provisions are the heart of President Trump’s economic agenda that puts working families ahead of Washington and will create jobs, grow wages and investment, and help usher in a new golden age of prosperity. Ways and Means Republicans have spent two years preparing for this moment, and we will deliver for the American people.”

    The proposal comes amid the president’s full blown attack on higher education, which has seen the federal government clamp down on research funding, go after colleges for alleged antisemitism, take aim at diversity, equity, and inclusion programs, and attempt to deport international students.

    Since the 1.4 percent endowment excise tax was passed in 2017 during the first Trump administration higher education leaders have long worried that the president would raise it in his second term. 

    As universities increased their lobbying efforts in the early days of Trump 2.0, the potential increase to the endowment tax has been a key concern. Recent lobbying reports show that Harvard University, which has the largest endowment, recently valued at more than $53 billion, Princeton University, Northwestern University, and multiple others, have pressed Congress on the issue. (Northwestern’s chief investment officer said last week that the potential increase would be “destructive.”)

    Smaller institutions, some of which had never hired federal lobbyists before 2025, have also raised concerns about how expanding the endowment tax would harm their educational mission.

    According to an analysis from James Murphy, director of career pathways and post-secondary policy at Education Reform Now, only three universities would pay the highest rate at 21 percent – Princeton, Yale University and the Massachusetts Institute of Technology. Another 10 universities, including Harvard, would get hit with the 14 percent rate.

    An analysis published last month by the investment firm Hirtle Callaghan noted that recently proposed changes to the endowment excise tax would “significantly broaden the universe of colleges and universities that pay the tax from large, wealthy institutions to smaller, regional ones.” That analysis warned that such increases “threaten to do irreparable damage to many schools which are significantly weaker financially than the schools paying the current tax.”

    Multiple higher education associations have previously expressed opposition to the increase. 

    Last fall, American Council on Education president Ted Mitchell sent a letter to Congress, co-signed by 19 other associations, calling for the repeal of the existing endowment tax, arguing that “this tax undermines the teaching and research missions of the affected institutions without doing anything to lower the cost of college, enhance access, or address student indebtedness.”

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  • Three Easy Tax Fixes That Would Help Students Succeed

    Three Easy Tax Fixes That Would Help Students Succeed

    As Congress works on a sweeping rewrite of the tax code, students and families across the country are watching—and hoping this moment leads to real change that will increase access to higher education. The conversation in Washington will likely center on what to keep, what to cut, and how to fit higher education into the massive, complex puzzle that is the U.S. tax code. But lawmakers have a chance to do something simple but powerful: pass three bipartisan tax fixes that would make a big difference for low- and middle-income students.

    These fixes may not grab national headlines, but for those trying to pay tuition, cover everyday expenses, return to school to finish a degree, or chip away at their student loan debt, they could make a meaningful difference. In a time of deep partisan divides, Congress should focus on policies with broad, bipartisan support—especially those that are low-cost and already proven to help students succeed.

    Here are three commonsense ideas that would do just that:

    1. End the Tax on Pell Grants—So Students Can Keep the Aid They Deserve

    For over 6 million low-income students, the Pell Grant is a lifeline—essential financial aid to help cover the cost of college. But under current tax law, Pell Grants used for some non-tuition expenses like housing or childcare can be taxed as income. That means students from families earning less than $60,000 a year could end up with a tax bill just for trying to make ends meet while earning their degrees.

    Even worse, a complicated interaction issue between Pell Grants and the American Opportunity Tax Credit (AOTC) means many students at lower-cost schools—especially community colleges—lose access to the up to $2,500 of aid available under the AOTC entirely. Under current law, students can’t apply both Pell Grants and the AOTC to the same tuition costs. If a Pell Grant covers most or all of a student’s tuition, as can be true for community college students, there may be nothing left to claim the credit on. The only workaround is to apply the Pell Grant to other expenses—like housing or childcare—which then makes it taxable. It’s a frustrating and unfair setup that affects an estimated 550,000 Pell-eligible students every year.

    Repealing the taxability of Pell Grants and fixing this interaction issue would allow students to keep more of the financial aid they’ve earned and simplify their tax filing process. Bipartisan legislation—the Tax-Free Pell Grant Act—would make this change, and it’s time for Congress to act.

    2. Modernize Section 127—So More Working Students and Families Can Access Education

    Today’s students aren’t just full-time undergraduates living in dorms. They’re parents, veterans, career changers, and working professionals going back to school to earn a degree or build new skills. One of the best tools to help them is employer-provided education assistance under Section 127 of the tax code, which lets employers provide up to $5,250 per year in tax-free educational assistance and student loan repayment.

    This benefit helps working students cover tuition, buy course materials, and even pay down student loans. But there’s a catch: the $5,250 cap hasn’t changed since 1986, and the provision allowing employers to use the benefit to help with student loan payments is set to expire this year.

    Several bipartisan bills—such as the Upskilling and Retraining Assistance Act and the Upward Mobility Enhancement Act—would raise the cap and allow benefits to cover education-related tools and technology. Another bill, the Employer Participation in Repayment Act, would make student loan repayment a permanent option.

    Modernizing Section 127 is a smart, low-cost way to expand opportunities for students who are balancing work, life, and learning—and give employers a powerful tool to invest in their workforce.

    3. Simplify Higher Ed Tax Credits—So Students Actually Receive Benefits for Which They’re Eligible

    In theory, the AOTC and Lifetime Learning Credit (LLC) are designed to make college more affordable. But in practice, the system is so confusing that many students don’t even know they’re eligible—let alone understand how to claim the credits.

    Only 60 percent of eligible students claim the AOTC, and take-up rates are even lower for low-income students. That means thousands of dollars in aid per student are going unclaimed, simply because the system is too complex.

    Students deserve better. A single, streamlined tax credit would help more people afford college, finish a degree, or return to school for career training. Past bipartisan proposals have called for combining the AOTC and LLC into one simplified, flexible credit. These plans would also expand what counts as eligible expenses—like computer equipment and childcare—so the benefit reflects the real costs students face today.

    By making the system simpler and more effective, Congress can ensure that intended benefits actually reach the students who need them most.

    A Better Deal for Students

    Comprehensive tax reform doesn’t come around often. This year, Congress has a chance to use that opportunity to advance policies that support the millions of students working hard to improve their lives through education.

    Fixing the tax treatment of Pell Grants. Modernizing employer-provided educational assistance. Simplifying higher education tax credits. These aren’t controversial ideas—they’re bipartisan, fiscally modest, and widely supported by educators, employers, and students alike.

    If Congress wants to demonstrate that tax reform can be fair, effective, and focused on the future, they should start by putting students first.

    Students, families, and advocates should urge their representatives to make higher education a priority in this year’s tax reform. They can easily do so using ACE’s Voter Voice feature. For more, visit our Tax Reform resource page.

    If you have any questions or comments about this blog post, please contact us.

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