Fact check: How does the big beautiful bill define a standard workweek for overtime purposes?

1. How the bill fixes the overtime baseline — a familiar 40‑hour benchmark with overtime premiums

The legislation codifies a 40‑hour workweek standard for overtime calculation, meaning employers must pay overtime for hours worked beyond 40 in a workweek at time‑and‑a‑half the regular rate. That mirrors the long‑standing Fair Labor Standards Act (FLSA) rule and explicitly ties the overtime entitlement in the bill to FLSA Section 7 definitions, signaling no change to which employees are nonexempt under federal labor law but instead establishing the same hourly threshold as the baseline for the tax treatment introduced ^{[4] [1]}. The emphasis on FLSA conformity means the bill’s overtime tax relief is limited to legally required overtime premiums, not discretionary bonuses or other supplemental pay that employers might label as overtime.

2. The tax carve‑out: caps, who benefits, and duration

The bill creates a federal income tax exclusion for a portion of overtime earnings labeled “qualified overtime,” capped at $12,500 for individual filers and $25,000 for married filing jointly, and applies for specified taxable years. The exclusion is an employee‑side deduction targeted at workers who actually receive overtime premiums under the FLSA, rather than a payroll tax or employer credit. Commentators and practitioner guides emphasize the cap as a limiter on the policy’s fiscal exposure and its targeting toward middle‑income overtime earners; the legislation also includes phaseout thresholds tied to modified adjusted gross income, indicating lawmakers intended the benefit to phase out for higher earners ^{[5] [3]}.

3. The legal hinge: “qualified overtime” and FLSA conformity creates practical gray areas

The term “qualified overtime” is defined by reference to the FLSA’s overtime requirement, which excludes exempt employees and depends on an employee’s classification and the employer’s pay practices. By tying the tax exclusion to FLSA Section 7, the bill leaves room for disputes about what overtime is “required” versus voluntary or misclassified. Payroll practitioners warn that employers who change pay structures, reclassify staff, or pay flat premiums may find portions of pay ineligible for the exclusion; administrative guidance from tax and labor agencies will be crucial to resolve reporting, documentation, and eligibility questions ^{[6] [7]}.

4. Phaseouts and eligibility limits — who gains and who’s left out

The bill’s income phaseouts and fixed caps mean the policy disproportionately benefits middle‑income workers who earn overtime but not high‑earners, with specified phaseout thresholds that remove the benefit for taxpayers above set income ceilings. Analysts point out that the combination of a hard cap and phaseout produces a non‑linear benefit schedule: workers just under the phaseout receive the full exclusion up to the cap, while higher‑income workers lose eligibility entirely, making the policy both targeted and somewhat abrupt in its eligibility boundary ^{[3] [8]}. The design choice reduces fiscal cost but also restricts the policy’s reach, which advocates and critics have both flagged.

5. Employer reporting and administrative implications that remain unsettled

Multiple analyses stress that employers will need to track overtime premiums separately and adjust payroll systems to reflect what counts as qualified overtime for tax purposes. Because the exclusion depends on the overtime being legally required under the FLSA, employers must maintain robust records proving the overtime basis, hours worked, and regular rates used to calculate premiums. Guidance from the IRS and Department of Labor will be necessary to specify reporting lines, withholding effects, and mechanistic details; absent that guidance, payroll teams face implementation risk and potential compliance disputes ^{[7] [1]}.

6. What commentators agree on and where interpretations diverge

Observers uniformly agree the bill preserves the 40‑hour overtime rule and time‑and‑a‑half pay standard while introducing a tax advantage limited to FLSA‑defined overtime and capped annually. Disputes center on administrative scope: whether the exclusion will cover employer‑mandated overtime only, how mixed compensation packages are treated, and how phaseouts will interact with other tax provisions. Some practitioners frame the change as a modest benefit for overtime earners; others highlight implementation complexity and the potential for narrow eligibility due to caps and phaseouts — differences that will likely persist until formal agency guidance and IRS rules clarify the mechanics ^{[2] [5] [6]}.