Tax-free strike benefits for unions

Full Title:
Tax Cut for Striking Workers Act of 2026

Summary#

The bill would change federal income tax law to make certain strike-related payments from labor unions tax-free for the workers who receive them. It creates a new rule that excludes "qualified strike benefits" from a recipient's gross income and adjusts one rule about the Earned Income Tax Credit to reference this new exclusion. The change would start for payments received after December 31, 2026.

  • Main change: Strike replacement payments made by labor organizations that are tax-exempt under section 501(c)(5) would not be included in an individual’s gross income for federal income tax.
  • Who qualifies: Payments must be made by a labor organization described in section 501(c)(5) and be replacement pay for wages lost because of a strike, lockout, or similar work stoppage under the National Labor Relations Act or the Railway Labor Act.
  • Tax-credit rule updated: The bill inserts the new exclusion into one Earned Income Tax Credit rule, which could affect how those payments interact with that credit.
  • Effective date: Applies to compensation received after December 31, 2026.

What it means for you#

  • Striking workers who get union strike pay: If you receive wage-replacement payments from a qualifying labor union during a strike or lockout, you would not have to report that money as gross income on your federal tax return after 2026. That could lower your federal income tax bill for that year.
  • Members of unions not meeting 501(c)(5): The exclusion only covers payments from organizations described in section 501(c)(5). If your union or group is not in that category, the bill’s exclusion would not apply.
  • People claiming the Earned Income Tax Credit (EITC): The bill changes an EITC rule to reference the new exclusion. The bill text does not clearly state whether excluded strike benefits will count as earned income for EITC purposes. This could affect EITC eligibility or credit amounts, but the exact effect is not spelled out.
  • Labor organizations (unions): The bill affects how payments they make to members are taxed for recipients. The bill does not change the tax status of the unions themselves or say the unions get any new tax deductions.
  • Employers and payroll: The bill does not change employer wages or withholding rules for normal pay. It only addresses union-provided replacement payments.

Expenses#

No publicly available information.

  • The bill text does not include a fiscal note or estimate.
  • Likely effects (based on the text): this change could reduce federal income tax revenue because some payments that used to be taxed would become tax-free. The size of any revenue loss is not provided.
  • Implementation could require IRS guidance to define and verify qualifying payments and reporting, which could create administrative costs for the IRS and for unions reporting payments. The bill itself does not provide details or cost estimates.

Proponents' View#

  • The bill appears intended to reduce the tax burden on workers who lose pay because of strikes or lockouts.
  • A possible argument for the bill is that it helps workers maintain income during labor disputes by making union strike pay tax-free.
  • Supporters may view this as making strike pay function more like a form of emergency or replacement assistance, and as giving unions a clearer means to support members without creating additional tax costs for them.

Opponents' View#

  • One concern is that the bill could reduce federal tax revenue; no estimate of the cost is provided in the bill text.
  • The bill limits the exclusion to payments from organizations described in section 501(c)(5), so some workers who receive replacement pay from other sources would not benefit.
  • The bill does not clearly explain how excluded strike payments interact with the Earned Income Tax Credit; it amends the EITC rule but does not state whether the excluded payments count as earned income, leaving uncertainty for recipients and tax administrators.
  • The law does not set out reporting or verification rules for these payments, which may make enforcement or fraud prevention harder for the IRS.
  • Treating union-provided replacement pay differently from employer-paid wages could create complexity or opportunities to reclassify payments to gain tax advantages; the bill does not address such risks.