The One Big Beautiful Bill Act (OBBBA), passed by Congress and signed into law last year by President Trump, allows employees to deduct overtime premiums (the “half” in “time-and-a-half”) mandated by section 7 of the federal Fair Labor Standards Act (FLSA) from their income for federal income taxable income for tax years 2025 through 2028. Individual taxpayers can deduct as much as $12,500 and married taxpayers filing jointly may deduct up to $25,000 in overtime premiums from their income for federal tax purposes. OBBBA also imposes filing and information provision requirements on employers to inform employees about overtime premiums qualifying for deduction with relief from penalties for the 2025 tax year (a recognition that Internal Revenue Service compliance guidance is still very much in flux).

All this poses unique problems for agricultural employers who will likely employ employees who are totally exempt from FLSA section 7 overtime, but are subject to overtime under Labor Code Section 510, and under California Industrial Welfare Commission Wage Order 14 while they also employ employees who are required to be paid overtime premiums under both FLSA section 7, Labor Code Section 510 and other California Industrial Welfare Commission Wage Orders.

National employer labor law firm Fisher Phillips’ Senior Counsel and Partner John K. Skousen and Spencer W. Waldron attempt to sort out some of this confusion in California Employer Guide to Federal “No Tax on Overtime” Law: Key Takeaways That May Surprise and Challenge Your Workplace. Skousen and Waldron highlight possible areas of confusion with respect to differing compensation and duties requirements under federal and California law for employees to be considered overtime-exempt (with California’s duties tests generally being tighter and more detailed and California’s income thresholds being higher than federal requirements). This means some employees who might be overtime-exempt under federal law might not be exempt under California law, causing them to earn California-mandated overtime premiums that would not be deductible under OBBBA. If their employer chooses not to treat employees as overtime-exempt even if California allows it, those employees would earn no overtime premiums that could be deductible under OBBBA.

Skousen and Waldron mention that California agricultural employees are entirely exempt for from FLSA overtime but are of course required to be paid overtime under the California Labor Code; is any of the overtime earned by a California ag employee OBBBA-deductible?

Since Section 7 of FLSA exempts all agricultural employees including those in California, no overtime premiums earned by agricultural employees would apparently be OBBBA-deductible. As a result, California agricultural employees earning overtime after 8 hours in each workday, 40 hours in each workweek and the first eight hours of the seventh consecutive day of work in a workweek, as well as double-time after 10 hours in a workday and 8 hours on the seventh consecutive day would earn no overtime premiums that would be OBBBA-deductible from their federal taxable income.

Aside from the complications of sorting out federal v. state overtime exemptions, California farm employers sometimes employ people who are covered by both the Fair Labor Standards Act Section 7 and Labor Code Section 510. These might include employees employed by farmer who are covered by Industrial Welfare Commission Wage Order #4, Professional, Technical, Clerical, Mechanical, and Similar Occupations, or Wage Order #8, Industries Handling Products After Harvest but are not subject to the FLSA section 7 agricultural employment exemptions, including primary agriculture (farming in all its branches e.g., the cultivation and tillage of the soil; dairying; the production, cultivation, growing, and harvesting of any agricultural or horticultural commodities; and the raising of livestock, bees, fur-bearing animals, or poultry) or secondary agriculture (all practices, including forestry or lumbering operations, performed by a farmer or on a farm, and as an incident to or in conjunction with such farming operations). Secondary agriculture would include cutting or freezing a farm’s own produce (i.e., that produced or raised by the farmer or on its farm) fruits, vegetables, and meat, without adding any ingredients. Activities like office work or processing a neighbor’s produce would fall outside the FLSA section 7 definition of overtime-exempt agriculture; as a result, overtime premiums paid to these employees after 40 hours in a workweek as required by FLSA (and also by the California Labor Code) would be OBBBA-deductible.

All the preceding might be summed up in two simple rules:

• Agricultural employees who are overtime-exempt under Fair Labor Standards Act section 7, but who are paid overtime premiums under California Labor Code Section 510, have not earned overtime premiums that can be deducted under the One Big Beautiful Bill Act and should not deduct them for their income for federal income tax purposes;
• Employees of a farm who are not overtime-exempt under FLSA section 7 who earned overtime premiums for working more than 40 hours in a workweek may deduct those premiums from the income for federal income tax purposes, subject to the limitations described above.

Internal Revenue Service Notice 25-62 suggests to employers the following:

[E]mployers and payors are encouraged to provide employees and payees with separate accountings of overtime compensation such that the employee or payee has the information the employee or payee needs to determine whether the employee or payee can claim the deduction for qualified overtime compensation under section 225 for taxable year 2025. Employers and payors can make such information available to their employees and payees by including it in box 14 of the employee’s Form W-2, or through an online portal, additional written statements furnished to the employees or payees, or other secure methods.

FELS will share additional information with members as it becomes available.