The One Big Beautiful Bill Act (OBBBA), passed by Congress and signed into law last year by President Donald 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 on employers filing and information provision requirements 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 that likely employ employees who are exempt from FLSA section 7 overtime but are subject to overtime under California law and under California Industrial Welfare Commission Wage (IWC) Order 14, Employed in an Agricultural Occupation, Order 13, Preparing Agricultural Products for Market, on the Farm, or Order 4, Professional, Technical, Clerical, Mechanical, and Similar Occupations, while they might also employ employees who must be paid overtime premiums under both FLSA section 7 and California law and other IWC Wage Orders, most notably Order 8, Industries Handling Products after Harvest.

Attorneys with labor and employment law firm Fisher Phillips sort out this confusion in “No Tax on Overtime” Hits Different for Agricultural Employers: Why Most On the Farm Ag Workers Won’t Benefit + Key Compliance Points for Your Business.

The article focuses on why most employees employed in agriculture are ineligible to take a tax deduction for overtime pay. It notes the tax deduction is available only for overtime pay required by section 7 of the FLSA and that persons employed in agriculture are exempt from that requirement. The article continues by explaining what it means to be employed in agriculture.

The article notes that California agricultural employees are entirely exempt from FLSA overtime but are of course required to be paid overtime under state law.

Is any overtime paid to a California ag employee as mandated by California law and regulation OBBBA-deductible?

Because the FLSA exempts all persons employed in agriculture from overtime pay, including those in California, overtime premiums paid to them as per state law are not OBBBA deductible.

As a result, a California agricultural employee paid time-and-a-half after eight and up to 12 hours in a workday, after 40 hours in a workweek, or during the first eight hours of the seventh consecutive day of work in a workweek, as well as double-time after 12 hours in a workday or eight hours on the seventh consecutive day of work in a workweek, was not paid overtime premiums that would be OBBBA deductible from the employee’s federal taxable income.

Aside from the complications of sorting out federal versus state overtime exemptions, California farm employers sometimes employ people who are covered by overtime-pay provisions of both FLSA section 7 and California law.

These might include employees who are covered by overtime requirements of California law and Industrial Welfare Commission Wage Order 8, Industries Handling Products after Harvest, but who are not subject to the FLSA section 7 exemption for persons employed in agriculture.

Under the FLSA, employed in agriculture means both 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) and 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 includes 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.

In contrast, activities like working in a winery or processing a neighbor’s produce fall outside the FLSA section 7 definition of overtime-exempt agriculture. As a result, overtime premiums paid to these employees for work performed after 40 hours in a workweek as required by the FLSA (and also by the California Labor Code and IWC Wage Order 8) is OBBBA deductible.

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

• Agricultural employees who are overtime exempt under FLSA section 7 but who are paid overtime premiums under California law and regulations have not been paid overtime premiums that may be deducted under OBBBA and thus may not deduct them from their income for federal income tax purposes.
• Employees who are not overtime-exempt under FLSA section 7 and are paid overtime premiums for working more than 40 hours in a workweek may deduct those premiums from their income for federal income tax purposes, subject to the limitations discussed 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 has resources available for FELS members at FELS Resources: Wages & Hours in California: “One Big Beautiful Bill Act Overtime Premium Deductibility”.