BBB Overtime Tax Exemtion Question?

[go_deep]

In the Big Beautiful Bill there is no tax on overtime, the amount that's greater than your normal hourly pay.
If your getting paid overtime, can your employer exempt for example your first 5 hours and label them as standby, so you can't benefit from the tax exemption of those overtime hours?
These 5 hours would be paid at 1.5x your hourly work rate, and they're worked hours.

What benefit would the employer have exempting those hours? They're still paying the same dollar amount out at the end of the month, right?

 

[mntnguide]

There is still tax on OT...you just can deduct "X" amount off taxes at end of year, from OT worked. Not really sure i understand what you are asking for though. Anything over 40hrs a week and paid at 1.5x is looked at. . I worked over 600 hours OT last year, just did my tax return and thanks to the new bill, more than doubled my tax return after inputting the OT pay for deduction. But it is not something that happens on individual paychecks throughout the year

 

[JFK]

That’s encouraging. I worked over 600 hours OT last year as well.

Is the deduction for OT pay or the taxes paid on OT pay?

 

[HuntHarder]

Look at income thresholds, alot will make too much for this to apply to them.

 

[go_deep]

There is still tax on OT...you just can deduct "X" amount off taxes at end of year, from OT worked. Not really sure i understand what you are asking for though. Anything over 40hrs a week and paid at 1.5x is looked at. . I worked over 600 hours OT last year, just did my tax return and thanks to the new bill, more than doubled my tax return after inputting the OT pay for deduction. But it is not something that happens on individual paychecks throughout the year

My employer is saying they want to exempt some of our OT hours by labeling then as standby from being tax exempt. So we would have to still pay taxes on those first 5 hours.

It makes zero sense to me, my employer has to pay out the money either way, but by doing this it negatively impacts us the employee from being able to not pay taxes on those first 5 hours of OT.

 

[go_deep]

That’s encouraging. I worked over 600 hours OT last year as well.

Is the deduction for OT pay or the taxes paid on OT pay?

It'll get returned to you in the form of a tax refund, but it's only the amount over your regular pay.
So if you make $20 an hour, get paid $30 an hour on OT, the tax exempt amount is only $10 an hour of that overtime amount.

 

[wapitibob]

I've been on the other end of employers doing some creative financing to lessen their burden while increasing mine. I would suspect the employer is getting a benefit from their maneuver.

 

[mntnguide]

Look at income thresholds, alot will make too much for this to apply to them.

If you gross over 150k, which I was, you still get deductions, it just goes down depending on how much over that you are. And im talking a single individual, dual income households might make to much for it to matter depending

My employer is saying they want to exempt some of our OT hours by labeling then as standby from being tax exempt. So we would have to still pay taxes on those first 5 hours.

It makes zero sense to me, my employer has to pay out the money either way, but by doing this it negatively impacts us the employee from being able to not pay taxes on those first 5 hours of OT.

gotcha.. that's above my lineman brain there. . im sure an actual cpa or someone on here can answer with more clarity for ya

 

[Tony Nile]

I logged 1275 hours of OT in '25. My wife doesn't work, so I will be below the married threshold!

 

[Wheels]

It should show the amount of overtime that isn’t taxed in box 14 of your W2.

 

[HuntHarder]

In the Big Beautiful Bill there is no tax on overtime, the amount that's greater than your normal hourly pay.
If your getting paid overtime, can your employer exempt for example your first 5 hours and label them as standby, so you can't benefit from the tax exemption of those overtime hours?
These 5 hours would be paid at 1.5x your hourly work rate, and they're worked hours.

What benefit would the employer have exempting those hours? They're still paying the same dollar amount out at the end of the month, right?

Lots of OT will not qualify. It is OT as defined in the FLSA. I get quite a bit of what we call "non worked" OT that won't qualify. Stand by pay would be considered "Non worked" time at my place. The employer still has payroll taxes on that time tho, so I'm not sure of their angle.

Income limits on all these things are complete bullshit. There has to be some sort of adjustment based on where you live. 150k in San Francisco is no where near 150k in Jackson, Mississippi. Makes no sense. 150k in Phoenix Az is not big money. Phase out thresholds are waaayy to low imo.

 

[4090Sharps]

What benefit would the employer have exempting those hours? They're still paying the same dollar amount out at the end of the month, right?

The benefit to the employer is being compliant for tax purposes. Only certain types of hours worked qualify for the exemption. There’s a lot of qualifiers, exemptions, and disparities between various state and federal standards.

No tax on OT was about headlines, which tracks with overtime rules from Trump admin round 1 that sought to limit who could qualify for OT.

 

[go_deep]

Lots of OT will not qualify. It is OT as defined in the FLSA. I get quite a bit of what we call "non worked" OT that won't qualify. Stand by pay would be considered "Non worked" time at my place. The employer still has payroll taxes on that time tho, so I'm not sure of their angle.

Income limits on all these things are complete bullshit. There has to be some sort of adjustment based on where you live. 150k in San Francisco is no where near 150k in Jackson, Mississippi. Makes no sense. 150k in Phoenix Az is not big money. Phase out thresholds are waaayy to low imo.

So, these are all worked hours, but their saying they're going to exempt just the first 2 hours.

I don't see any advantage for them, this only hurts the employee from not being able to get that money back on or tax return.

 

[go_deep]

The benefit to the employer is being compliant for tax purposes. Only certain types of hours worked qualify for the exemption. There’s a lot of qualifiers, exemptions, and disparities between various state and federal standards.

No tax on OT was about headlines, which tracks with overtime rules from Trump admin round 1 that sought to limit who could qualify for OT.

So, these are all worked hours, but their saying they're going to exempt just the first 2 hours from every week still so we won't be able to get that back on our tax returns.

 

[HuntHarder]

What is their rationale? Essentially you are saying it's a normal shift, that they will just re-classify the first 2 hours only?

 

[Wapiti7]

The amount available for "no tax on overtime" is just the premium portion of the overtime pay, as mentioned above. The definition of overtime is based upon the Fair Labor Standards Act. I am guessing for most people that means time and a half. So, if you are a $20/hr person and had 50 overtime hours at $30 per hour, it would just be $500 that qualifies. IRS came out and said that they are not requiring reporting on 2025 W-2's (which is asinine), though some employers are voluntarily doing it. If not, use your final paystub...if paid time and a half for OT, take total OT pay and divide by 3. Max is $12,500 ($25k for MFJ), with phase out starting at $150k ($300k for MFJ). Deduction is reported on new Schedule 1-A and you don't have to itemize to get it. There can be limitations for business owners (as it is easy to manipulate OT pay).

 

[go_deep]

What is their rationale? Essentially you are saying it's a normal shift, that they will just re-classify the first 2 hours only?

Yes

 

[HuntHarder]

Yes

Reason given by the company? Large company? Union?

 

[go_deep]

Reason given by the company? Large company? Union?

They wouldn't answer, just simply started is not that big of a deal, it's only a few hundred dollars guys.

 

[fngTony]

My employer is saying they want to exempt some of our OT hours by labeling then as standby from being tax exempt. So we would have to still pay taxes on those first 5 hours.

It makes zero sense to me, my employer has to pay out the money either way, but by doing this it negatively impacts us the employee from being able to not pay taxes on those first 5 hours of OT.

Never heard of standby hours. States can have different laws but that sounds dumb. They pay payroll tax on what they pay you so ot cost them more.