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The answer, of course, is “it depends” — and it’s not quick or easy.  Like most things tax-related, the answer is tailored to each client’s circumstances and goals AND of course the tax law!

Over the past few weeks, our office has spent 20+++ hours attending seminars focused entirely on the newly passed One Big Beautiful Bill Act (OBBBA), Public Law 119-21.  We’ve been learning the law and discussing how to educate our clients (and ourselves).  Working up tax planning and tax minimization ideas for 2024 (where applicable), 2025, and 2026,+++, and we’ll continue to do so as technical corrections and guidance are released.

Since its passing, I’ve been highlighting a different portion of the law in my weekly blog posts to start us thinking🤔/talking🗣️/planning✍🏻. This isn’t about quick answers or solutions — which are often like “putting a band-aid on a bullet hole” .  These “quick questions” are just jumping-off points for deeper conversations, just as these blog posts are designed to get you thinking… but the real answers will depend on your short-term and long-term financial goals. 🧭💬

This Week’s Focus: “No Tax on Overtime”….MAYBE

🎯 “No Tax on Overtime” – What It Actually Means:

Beginning in 2025 and running through 2028, some employees may be able to deduct the “extra” portion of their overtime pay on their tax returns. Sounds simple? Not quite.

Here’s a breakdown:

✅ New Deduction (For Individuals)

•  What’s deductible? The “half” portion of “time-and-a-half” compensation — that is, the amount above regular hourly pay, as required by the Fair Labor Standards Act (FLSA).
•  Where must it be reported? Form W-2, Form 1099, or another official IRS-approved wage statement.
•  Maximum Deduction:
– $12,500 for single filers
– $25,000 for joint filers
•  Phaseout Threshold: 

– Begins at $150,000 modified AGI for single filers
–Begins at $300,000 for joint filers

💡 Available whether or not you itemize deductions.

🧾 Eligibility Requirements:  Taxpayers must:

• Include Social Security Number on the return
• Married taxpayers, must file jointly to claim the deduction

📄 Employer/Payor Reporting

• Employers (and other payors) must:
  – File information returns with the IRS or SSA
  – Furnish statements to employees showing qualified overtime compensation paid during the year
• Guidance: The IRS will provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.

🏥 Employees, Take Note:

• The benefit is realized when you file your return, not in each paycheck
  • Federal income tax withholding tables won’t be updated until 2026, so your 2025 paychecks won’t be higher — yet 🔗 IRS Fact Sheet 2025-03
  • Starting in 2026, expect slightly larger paychecks if you consistently work overtime
• 🧮 Don’t Forget Other Taxes!  Even if federal income tax is no longer owed on qualified overtime pay:
  • This income will/may still be subject to:
  – Social Security and Medicare (FICA) taxes
  – State and local income taxes, where applicable

🏢 Employers, Take Note:

• The deduction only applies to overtime required by federal law (i.e., Section 7 of the FLSA)
  • Overtime required under state laws or collective bargaining agreements is excluded
  – Example: California’s daily overtime rules do not qualify
•  Employers may use a reasonable method (to be defined by Treasury) in 2025 to approximate the “qualified” overtime portion

📌 IRS Link for Additional Info:  🔗 IRS: OBBBA Tax Deductions for Working Americans and Seniors

Final Thoughts:  Let the planning begin: Please keep the “quick questions” coming — but let’s also keep the conversations going until we’re confident we’ve landed on the best possible answers and strategies. Your financial plan is more than a number — it’s your roadmap and should include tax minimization planning

Seems like this is another call to action, no wishful thinking, let’s not say “I wish I had…”,  and as always

Feel free to search our website for some of our complementary resources or get in touch:  Contact us if you have tax concerns, tax minimization questions or want to discuss the next steps for your business success and financial goals.  Use our search box for those posts specific to tax minimization, business planning, business best practices, casualty losses, etc. and see what “pop’s” up.