b'32 LEGALLY SPEAKINGNO TAX ON OVERTIME? PREPARING YOUR PAYROLL FOR THE NEW DEDUCTIONSDedicated to keeping its members at the forefront in their industryO n November 21, 2025, the IRS releasedEmployeesBy Bob Dunlevey By Marc FleischauerNotice 2025-69 (see here), providingmay deduct essential transition-year guidance forup to $12,500 the new federal income tax deductionsper individual for qualified overtime compensation created under(or $25,000 for joint filers) for qualified overtime the One, Big, Beautiful Bill Act (OBBBA).Althoughcompensation, limited to the portion of overtime pay the deductions apply to individual workers, the rulesrequired under the Fair Labor Standards Act (FLSA) have immediate consequences for employers payrolland also subject to employee income limitations. operations and employee communications beginning with the 2025 tax year. Understanding what is and is not required by the FLSA is important to understanding the deduction.In general, New Deductions for Tips and Overtime the FLSA only applies to non-exempt employees The OBBBA adds a new deduction for qualifiedand requires that hours worked in excess of 40 per overtime compensation under Internal Revenue Codeworkweek be paid at 1.5 times (time-and-a-half) the225. (It also adds a deduction for employees whoemployees regular rate.In that instance, the employee receive qualified tips under IRC224, not addressedwould only be eligible for a deduction of the half-time here.)This deduction applies to tax years beginningamount paid for any overtime work, or one-third of the after December 31, 2024, and before January 1, 2029.hourly overtime rate.The InsulatorJanuary 2026'