Alice Walker

Background The One, Big, Beautiful Bill Act (OBBBA), P.L. 119-21, added a new deduction for qualified overtime compensation. Notice 0-69 PD clarifies for individuals how to determine the amount of their deduction for qualified overtime compensation for the 2025 tax year. Q1. What is qualified overtime compensation for purposes of the deduction? A1. Qualified overtime compensation is overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act (LSA) 29 USC § 207) that exceeds the regular rate at which the individual is employed. For example, if an individual is paid at “one and one-half times” their regular rate for an hour of overtime work as required by the FLSA, the “half” portion of the “one and one-half times” paid for an hour of overtime work is qualified overtime compensation. - For overtime to be required under the FLSA, it must, among other requirements, be paid to an individual who is both covered by the FLSA and not exempt from the FLSA’s overtime requirement (an FLSA overtime-eligible employee). - An individual who is ineligible for overtime under the FLSA does not receive qualified overtime compensation regardless of other laws or circumstances (such as a collective bargaining agreement) providing for overtime pay. - Individuals eligible for overtime under the FLSA generally must receive overtime pay for hours worked in excess of 40 in a workweek at a rate not less than one and one-half times their regular rate of pay. If an individual is eligible for overtime under the FLSA, but the individual’s employer pays more than is required under the FLSA, the qualified overtime compensation is limited to the portion of the overtime that is required by the FLSA that is in excess of the regular rate. For example, if an employer pays double the individual’s regular rate for hours worked over 40 in a workweek, only the one-half portion that is relied upon to comply with the FLSA requirement is qualified overtime compensation.

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