Are You Prepared to Help Your Employees Take Advantage of the Tax Deduction for Overtime Compensation for Tax Year 2025?
During the Presidential campaign and the subsequent Sunday talk shows leading up to the One Big Beautiful Bill (“BBB”), American voters heard that overtime (“OT”) compensation will be tax free. Now that the legislation has passed, that’s only “kinda sorta” true. No wages are exempt from taxation, so payroll deductions on OT will continue, and that means weekly paychecks will not increase due to the BBB. The BBB allows for a deduction to be taken on employee tax returns for the OT premium – an hourly wage of $20 has an OT premium of $10 . Only the $10 may be deducted. The deduction is capped: $12,500 for single filers, $25,000.00 for married filers. Only FLSA qualified OT is eligible for the deduction. State laws with OT after 8 hours, company paid OT not required by federal law and similar OT opportunities paid pursuant to a contract or collective bargaining agreement are not eligible for the deduction. The BBB and this exemption apply to tax year 2025. Howe...