An Act amending the act of March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of 1971, in personal income tax, further providing for definitions and providing for provisions for overtime pay.

PRINTER'S NO. 1545
THE GENERAL ASSEMBLY OF PENNSYLVANIA
HOUSE BILL
No. 1357
Session of
2025
INTRODUCED BY CEPHAS, KHAN, McNEILL, GIRAL, HILL-EVANS, HADDOCK,
DONAHUE, LEADBETER, HOHENSTEIN, KENYATTA, CERRATO AND GREEN,
APRIL 30, 2025
REFERRED TO COMMITTEE ON FINANCE, APRIL 30, 2025
AN ACT
Amending the act of March 4, 1971 (P.L.6, No.2), entitled "An
act relating to tax reform and State taxation by codifying
and enumerating certain subjects of taxation and imposing
taxes thereon; providing procedures for the payment,
collection, administration and enforcement thereof; providing
for tax credits in certain cases; conferring powers and
imposing duties upon the Department of Revenue, certain
employers, fiduciaries, individuals, persons, corporations
and other entities; prescribing crimes, offenses and
penalties," in personal income tax, further providing for
definitions and providing for provisions for overtime pay.
The General Assembly of the Commonwealth of Pennsylvania
hereby enacts as follows:
Section 1. Section 301(d) of the act of March 4, 1971
(P.L.6, No.2), known as the Tax Reform Code of 1971, is amended
and the section is amended by adding a subsection to read:
Section 301. Definitions.--Any reference in this article to
the Internal Revenue Code of 1986 shall mean the Internal
Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. § 1 et seq.),
as amended to January 1, 1997, unless the reference contains the
phrase "as amended" and refers to no other date, in which case
the reference shall be to the Internal Revenue Code of 1986 as
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it exists as of the time of application of this article. The
following words, terms and phrases when used in this article
shall have the meaning ascribed to them in this section except
where the context clearly indicates a different meaning: (Intro.
par.
* * *
(d) "Compensation" means and shall include salaries, wages,
commissions, bonuses, overtime pay and incentive payments
whether based on profits or otherwise, fees, tips and similar
remuneration received for services rendered, whether directly or
through an agent, and whether in cash or in property. The term
"compensation" shall include any part of a distribution under a
plan described in section 409A(d)(1) of the Internal Revenue
Code of 1986 (Public Law 99-514, 26 U.S.C. § 409A(d)(1)), as
amended, attributable to an elective deferral of income or the
income on any elective deferral of income, whether paid or
payable during employment or to a retired person upon or after
retirement from service.
The term "compensation" shall not mean or include: (i)
periodic payments for sickness and disability other than regular
wages received during a period of sickness or disability; or
(ii) disability, retirement or other payments arising under
workmen's compensation acts, occupational disease acts and
similar legislation by any government; or (iii) payments
commonly recognized as old age or retirement benefits paid to
persons retired from service after reaching a specific age or
after a stated period of employment; or (iv) payments commonly
known as public assistance, or unemployment compensation
payments by any governmental agency; or (v) payments to
reimburse actual expenses; or (vi) payments made by employers or
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labor unions, including payments made pursuant to a cafeteria
plan qualifying under section 125 of the Internal Revenue Code
of 1986 (Public Law 99-514, 26 U.S.C. § 125), for employe
benefit programs covering hospitalization, sickness, disability
or death, supplemental unemployment benefits or strike benefits:
Provided, That the program does not discriminate in favor of
highly compensated individuals as to eligibility to participate,
payments or program benefits; or (vii) any compensation received
by United States servicemen serving in a combat zone; or (viii)
payments received by a foster parent for in-home care of foster
children from an agency of the Commonwealth or a political
subdivision thereof or an organization exempt from Federal tax
under section 501(c)(3) of the Internal Revenue Code of 1954
which is licensed by the Commonwealth or a political subdivision
thereof as a placement agency; or (ix) payments made by
employers or labor unions for employe benefit programs covering
social security or retirement; (x) personal use of an employer's
owned or leased property or of employer-provided services.
* * *
(n.3) "Overtime pay" means salaries or wages paid to
employes for hours of work officially ordered or approved in
excess of forty hours per week or eight hours per day, as
applicable, according to 5 U.S.C. § 5542 (relating to overtime
rates; computation).
* * *
Section 2. The act is amended by adding a section to read:
Section 357.1. Provisions for Overtime Pay.-- (a) An
employer required to withhold tax under section 316.1 shall
withhold tax from an employe's compensation pursuant to the
requirement of this article for all hours worked by the employe,
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including overtime hours as provided for under 5 U.S.C. § 5542
(relating to overtime rates; computation).
(b) An employer may not reduce or deny the availability of
overtime hours to employes pursuant to 5 U.S.C. § 5542 as a sole
result of the deduction under subsection (c), provided that
overtime hours would have otherwise been available to the same
employes under similar circumstances. An employer found to be in
violation of this subsection is subject to a fine of two
thousand dollars ($2,000) .
(c) When calculating taxable income on the annual personal
income tax return, a taxpayer who received overtime pay during
the taxable year shall be eligible to deduct an amount equal to
the amount of overtime pay received. If the amount of deduction
that the taxpayer is eligible to receive under this section
causes the taxpayer's tax liability under this article to be
less than zero, the department shall refund the excess amount to
the taxpayer.
Section 3. This act shall apply to taxable years commencing
on or after December 31, 2025.
Section 4. This act shall take effect immediately.
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