FLSA/OT Tax Deduction and the Big Beautiful Bill… - Federal Overtime Tax Deduction Overview

Sep 19, 2026

Covers the new federal overtime tax deduction under the Fair Labor Standards Act (FLSA), explaining how it applies nationwide for tax years 2025 through 2028, including retroactivity to January 1, 2025. The presentation distinguishes qualifying FLSA overtime from state law overtime and contractual overtime, noting that contractual and certain overtime types do not qualify unless they push hours over the FLSA threshold. It also defines which employee roles are generally subject to FLSA overtime and clarifies the fire-fighter work-period rules, premiums, and the portion that reduces taxable income on the federal return.

LanguageEnglish

CategoryPresentations

FormatPDF

Pages31

Reading Time11 min

AccessFree to download

Federal Overtime Tax Deduction Overview

Key rules and eligibility

FLSA overtime vs other overtime types

Which overtime qualifies

Regular employees

Exempt vs non-exempt roles

Fire fighters and Section 7(k)

Contractual overtime and filing guidance

Premium portion of time-and-a-half

FLSA/OT Tax Deduction and the Big Beautiful Bill… CAUTION: IAM NOTA TAX LAWYER THIS IS NOT TAX ADVICE What is the new Federal Overtime Tax Deduction? 􀁘 Applies nationwide under new federal tax rules 􀁘 Designed to provide tax relief to employees who work overtime 􀁘 Operates as a tax deduction that allows workers to reduce taxable income 􀁘 A federal income tax deduction, not a tax credit 􀁘 Reduces total taxable income you report to IRS on tax return, not your paycheck withholding 􀁘 Applies only when YOU file your federal tax return 􀁘 Available for tax years 2025 through 2028 􀁘Retroactive to tax year January 1, 2025 Fair Labor Standards Act (FLSA) Overtime Types of Overtime and Which Ones Qualify • Qualifies for the deduction • Deduction applies to overtime pay earned when you work more than the FLSA hourly thresholds. (“FLSA Overtime”) State Law Overtime • Does not qualify for the deduction • Additional overtime pay above what is required by FLSA will not qualify. (ORS 652.060) Contractual • Does not qualify for the deduction • Overtime, double time, premium pay provided by a collective bargaining agreement will not qualify. Overtime What is FLSA Overtime for the “Regular”Employee? 􀁘 Regular employees, 40-hour per week workers, those who do not engage in fire suppression: FLSA requires overtime pay for hours worked over 40 per workweek at a rate not less than one and one-half times the regular rate of pay. 􀁘 Single Roles 􀁘 Maybe prevention positions 􀁘 Community care workers 􀁘 Clerical/office positions that work 40-hours per week 􀁘 Exemptions: NOT everyone gets FLSA overtime pay! 􀁘 Executive, Administrative, Professional, Outside Sales, Computer are exempt from FLSA overtime pay. (Battalion Chiefs) . 􀁘 IF YOU DO NOT GET FLSA OT, YOU DO NOT QUALIFY FOR DEDUCTION . What is FLSA Overtime for Fire Fighters? 􀁘 Fire protection and law enforcement employees are special. Section 7(k) exemption permits longer work periods before overtime pay is required. 􀁘 Employer can select a “work period” provided by the law and FF receives overtime for hours worked in excess of the maximum hours permitted in that work period. What is FLSA Overtime for Fire Fighters? 􀁘 FLSA Overtime for Fire Fighters is paid at 1.5 x regular rate of pay for all hours worked in excess of the hourly threshold in the employer’s designated work period. (Example: 182 hours in 24-day period). 􀁘 FLSA overtime is based ONLY on actual hours “worked”. Paid leave (vacation/sick leave) do NOT count toward the FLSA overtime threshold. **Oregon law requires this, but not FLSA** 􀁘 Example: FF works for employer with FLSA work period of 24 days/182 hours. FF works 192 hours in the 24-day period. FF is entitled to 10 hours of FLSA overtime pay. What About Contractual Overtime? 􀁘 Union contracts provide overtime pay that is *different* from FLSA overtime pay. Contractual overtime, by itself, is NOT included in the new federal tax deduction.* 􀁘 Examples of Contractual Overtime Pay: 􀁘 OT pay for working on a holiday 􀁘 OT pay for hold over at the end of the shift 􀁘 OT pay for call back 􀁘 Double time pay *Unless these work hours put you over the FLSA threshold! Back to the Big, Beautiful … When filing your tax return for tax year 2025, you can ONLY deduct the “premium” portion of your FLSA overtime pay from your taxable income: 􀁘 Premium portion = the “half” pay above your normal hourly rate 􀁘 Often referred to as the “extra half” in the “time-and-a-half” pay. 􀁘 Example: 􀁘 Regular hourly rate: $20/hour 􀁘 FLSA Overtime rate @ time and a half: $30/hour 􀁘$20 = regular pay (NOT tax deductible)􀁘$10 = premium portion (YES tax deductible) 􀁘 Only the $10/hour counts toward the deduction

FAQs

What is the new federal overtime tax deduction under FLSA?

It is a federal income tax deduction that reduces the taxable income reported to the IRS, not a tax credit or a change to paycheck withholding.

Which types of overtime qualify for the deduction?

FLSA overtime qualifies when overtime pay is earned after crossing FLSA hourly thresholds. State law overtime and contractual overtime generally do not qualify unless the overtime hours put you over the FLSA threshold.

How is FLSA overtime calculated for fire fighters and what counts toward the threshold?

Fire fighters use a designated work period under Section 7(k), receiving overtime for hours worked beyond the maximum hours in that period, paid at 1.5 times the regular rate. Only actual hours worked count toward the FLSA overtime threshold; paid leave does not count.

Sep 19, 2026

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