How do I calculate qualified overtime for a 14‑day work period under FLSA for the 2025 deduction?
Executive summary
The 2025 “no tax on overtime” rule allows eligible employees to deduct the FLSA overtime premium—the extra half of time‑and‑a‑half pay—from federal taxable income, and for employees paid on a 14‑day FLSA work period the IRS examples treat combined overtime pay by dividing the employer‑reported total by three to extract the overtime premium (e.g., $15,000 ÷ 3 = $5,000) [1] [2]. If an employer separately reports the overtime premium, that reported premium is the amount to use; if not, the IRS permits reasonable presumptive methods (divide by 3 for typical time‑and‑a‑half in a 14‑day period, or other fractions when double/time differentials apply) and provides transition relief for 2025 reporting [3] [4] [5].
1. What “qualified overtime compensation” means under the new rule
Qualified overtime compensation (QOC) is only the overtime premium required and paid under Section 7 of the FLSA — essentially the “extra half” above the regular rate in a time‑and‑a‑half payment — and excludes pay that is not FLSA overtime (state daily overtime rules, pay to exempt employees, etc.) [4] [5]. The IRS guidance and allied summaries emphasize that QOC equals the premium portion of FLSA overtime, and that the deduction applies only to wages paid as required by the FLSA [4] [5].
2. How the 14‑day (work period) special rule is handled in examples
For public safety employees paid under FLSA work‑period rules (e.g., 14‑day section 7(k) work period used by many law enforcement agencies), the IRS examples show that when an employer reports a combined total of overtime wages for the year but does not separately identify the premium, taxpayers may extract the premium by dividing that combined overtime amount by three — so $15,000 of total overtime reported becomes $5,000 of QOC [1] [2]. That one‑third fraction reflects the IRS’s illustrative conversion for a 14‑day work period where the employer’s pay combines straight‑time for overtime hours plus the half‑time premium into one number [1] [2].
3. Practical calculation steps to follow when the premium is not separately reported
First, confirm FLSA coverage and that overtime was paid under Section 7; if the employer furnished a separate accounting of the overtime premium (Box 14 or a payroll statement) use that figure directly [5] [3]. If only a combined overtime total is shown, apply the IRS’s reasonable conversion: for standard time‑and‑a‑half overtime treated in the 14‑day example, divide the combined overtime amount by three to estimate the premium [1] [6]. If the employer paid double time or another multiple, use the alternative fraction the IRS permits (for example, dividing total double‑time overtime by four to isolate the half‑time premium) and retain payroll records and any employer communications to substantiate the method [4] [7].
4. Edge cases: comp time, work‑period design, and recordkeeping
Compensatory time payouts, different work‑period lengths (7–28 days for certain public safety employees), or payrolls that include locality or special rate supplements can change how much of a payout qualifies as QOC; the IRS examples explicitly treat comp‑time payouts and 14‑day work‑period calculations and instruct taxpayers to use reasonable methods if the premium isn’t separately listed [1] [3] [4]. Employers must provide the QOC information for 2025 by January 31, 2026, and the IRS provided penalty relief for 2025 to ease the transition, but taxpayers should preserve pay stubs, employer statements, and any FLSA‑status confirmations because a taxpayer’s ability to deduct depends on showing the amount is FLSA‑required overtime [5] [3] [8].
5. Limits, risks, and where taxpayers should be cautious
The deduction is limited to the statutory caps and to years the law applies, and it covers only FLSA‑required overtime premiums; state overtime rules or pay for exempt employees do not qualify [4] [8]. Because employers were not universally required to separately report QOC in 2025, taxpayers must make a reasonable effort to determine FLSA eligibility and keep documentation—relying on IRS Notice 2025‑69’s examples and allowed fractional methods if the employer didn’t provide a separate figure—but taxpayers with uncertainty should consult payroll or tax professionals since incorrect claims risk later adjustment [4] [3] [5].