No Tax on Overtime for Firefighters: What Qualifies

On the Job
Written By Adrienne Gaughan
No Tax on Overtime for Firefighters: What Qualifies

Short answer: the "no tax on overtime" deduction is real, but for a California firefighter the amount that actually qualifies is usually far smaller than the overtime line on your paystub, and sometimes zero. The law only counts the premium half of overtime that federal law requires, fire protection runs under special FLSA rules that don't require overtime until you pass 212 hours in a 28-day period (29 CFR 553.230), and California taxes every dollar of your OT regardless. Here's exactly how it works, with the IRS's own math.

This is education, not tax, legal, or investment advice. Tax law changes and your situation is specific. Confirm anything here with a licensed CPA or advisor before acting.

What the law actually is

The deduction lives in new IRC Section 225, added by OBBBA Section 70202(a), signed July 4, 2025 (P.L. 119-21). Key structure, per Notice 2025-69 and the statute:

  • Temporary. Tax years 2025 through 2028 only. It expires after 2028 unless Congress extends it.
  • Capped. $12,500 per return, $25,000 on a joint return. That's per return, not per spouse.
  • A deduction, not an exclusion. Your overtime still shows up in your wages, still has federal income tax withheld during the year, and still pays FICA. The benefit arrives when you file, as a deduction on the new Schedule 1-A.
  • You get it whether or not you itemize. Congress added it to the Section 63(b) list, so it reduces taxable income even if you take the standard deduction. But it does not reduce your AGI or MAGI, which matters for the phaseout below and for anything else keyed to AGI.
  • Married filing separately is ineligible, and you need a valid SSN (per Notice 2025-69).

The phaseout hits high-OT firefighters fast

The deduction shrinks by $100 for every $1,000 of modified AGI above $150,000 single or $300,000 joint (per 26 USC 225(b)(2)). Run that out:

  • Single filer, $200,000 MAGI: you lose $5,000 of the $12,500 cap.
  • Single filer, $275,000 MAGI: the deduction is fully gone.

Think about who earns big overtime in California fire. Busy mid-career firefighters at large departments routinely clear $150,000 to $250,000 with OT. The exact people with the biggest overtime lines are the people the phaseout is aimed at. A firefighter with a huge OT year can earn their way out of the deduction entirely. And because the deduction doesn't reduce MAGI, you can't use it to pull yourself back under the threshold. Deferring more into your 457(b) can lower MAGI, though, which is one more reason it's the anchor move (see the 457(b) for California firefighters).

The two-part filter: FLSA-required, premium only

Here's where the headline and the statute part ways. Section 225(c)(1) defines qualified overtime as compensation required under Section 7 of the FLSA that is in excess of the regular rate. That's a two-part filter:

  1. The overtime must be required by the FLSA itself. Overtime paid only because of your MOU, a union contract, California law, or department policy doesn't count. Notice 2025-69 is explicit that payments in excess of the FLSA-required premium are not qualified. Double-time and holiday premiums are out.
  2. Only the premium slice counts. For FLSA time-and-a-half, the "time" part (your regular rate) is not qualified. Only the "half," the premium above your regular rate, qualifies.

So even in the best case, the qualified amount is roughly one-third of an FLSA overtime payment, not the whole thing.

The 7(k) trap: why most firefighter OT doesn't qualify

This is the part almost every article on the internet gets wrong, so read it twice.

Most workers earn FLSA-required overtime after 40 hours in a week. Fire protection doesn't. Under FLSA Section 7(k), public agency fire protection employees are owed federal overtime only for hours over 212 in a 28-day work period, prorated for shorter periods (106 hours in 14 days), per DOL Fact Sheet #8.

Now look at a typical California 56-hour shift schedule. Your normal scheduled hours already run close to the 7(k) line, and your department (or your MOU) likely pays time-and-a-half well before you cross it: shift holds, strike team deployments, backfill, trades paid out. All of that shows up as "overtime" on your paystub. But if those hours fall below the 7(k) ceiling for your work period, the FLSA doesn't require them to be paid as overtime, which means under Section 225 they are not qualified. Contract overtime below the 7(k) line is generous, and it's real money, but for this deduction it's just wages.

What qualifies: the half-time premium on hours that exceed your department's 7(k) maximum for the work period. That's it. (One nuance from the notice: certain amounts credited under FLSA Section 7(h) may count toward the requirement, per footnote 11. That's CPA territory.)

As of mid-2026 there are no Treasury regulations under Section 225 yet and no firefighter-specific 28-day example from the IRS, and departments differ in how their payroll systems tag FLSA overtime versus contract overtime. Ask payroll how they're computing it, and confirm the treatment with a CPA.

The one-third math, straight from the IRS

The IRS did address public safety directly. Notice 2025-69 gives employers a menu of reasonable calculation methods, and method (G) covers public-sector fire protection and law enforcement under 7(k): the individual must compute the amount by operation of the different overtime rules in that provision. That notice applies to the 2025 tax year. For 2026 you do not compute it yourself, because your employer reports it (see Box 12, code TT below).

Example 5 in the notice shows the math. A law enforcement employee on a 14-day 7(k) work period is paid $15,000 of total annual overtime. The qualified amount is $5,000. One-third, the premium slice and nothing more. The same logic applies to fire protection on a 28-day period.

So stack the filters for a real California firefighter: start with the paystub OT line, remove everything below the 7(k) ceiling (often most of it), take one-third of what's left, cap it at $12,500, then run the phaseout if MAGI is over $150,000. The number that survives is usually a small fraction of what the headline implied. Useful if you get it. Not remotely "no tax on overtime."

Comp time counts only when it's paid out

If you bank comp time under FLSA Section 7(o), it isn't qualified overtime in the year you earn it. It counts only in the year it's paid out in cash, and then only the premium portion, the same one-third logic (Notice 2025-69, footnote 18; Example 6 walks $4,500 of comp-time wages down to $1,500). One condition people miss: the amount has to be properly reported on your W-2 to count at all. If you're sitting on a comp time bank, the year you cash it out is the year it can matter, subject to the same caps and phaseout.

California gives you zero

California does not conform. California uses static conformity, and its specified date is the Internal Revenue Code as of January 1, 2025 (SB 711, the Conformity Act of 2025, signed October 1, 2025). OBBBA became law on July 4, 2025, after that date, so none of its individual deductions flow to the California return. Every dollar of your overtime remains fully taxable on your California return, mostly at a 9.3% marginal rate for a mid-career single filer (per the FTB rate schedules; official 2026 bracket dollars publish in fall 2026). A future conformity bill is always possible, so watch for one, but don't plan around it. The broader California picture is in what California lets firefighters deduct.

How to claim it: Box 12, code TT

For tax year 2026, your employer is required to report your qualified overtime on your W-2 in Box 12 with code TT (per the finalized 2026 W-2/W-3 instructions). That figure is the controlling number for your 2026 return. You don't get to substitute your own bigger estimate because the paystub OT line looks larger; if you think payroll computed it wrong, that's a conversation with payroll and your CPA, not a DIY adjustment.

For 2025 returns, employers weren't required to report it (Box 14 was voluntary), so taxpayers self-computed under Notice 2025-69's reasonable methods, with penalty relief for employers under Notice 2025-62. If you're amending or late-filing a 2025 return, get help with that computation.

One more mechanical point: the deduction does nothing to your paycheck during the year. Withholding and FICA come out of OT checks exactly as before (per IRS Pub 15 mechanics). If your OT checks feel over-taxed, that's a withholding story, explained in the overtime tax myth.

FAQ

Is all my overtime tax-free now?

No. Only the premium half of FLSA-required overtime qualifies, and for fire protection the FLSA only requires overtime above the 7(k) ceiling (212 hours in 28 days, per DOL Fact Sheet #8). Contract and MOU overtime below that line doesn't qualify at all, the deduction caps at $12,500 single ($25,000 joint), it phases out above $150,000 ($300,000) MAGI, and California taxes all of it (per Notice 2025-69 and the CA conformity rules).

How much of my overtime will actually qualify?

It varies by department and by how much of your OT falls above your 7(k) ceiling, but the IRS's own Example 5 puts the qualified slice of qualifying time-and-a-half at one-third of the payment. Many California firefighters will see a qualified amount that's a small fraction of their paystub OT line. Your 2026 W-2 Box 12 code TT figure is the answer for your situation.

Does the deduction lower my California taxes?

No. California doesn't conform to the federal overtime deduction as of mid-2026, so your state return sees no benefit at all.

I file married filing separately. Can I claim it?

No. MFS filers are ineligible (per Notice 2025-69). That's worth factoring into a filing-status conversation with your CPA.

My spouse and I both earn overtime. Do we each get $25,000?

No. The cap is $12,500 single and $25,000 per joint return, not per spouse. And the joint phaseout starts at $300,000 MAGI, which two public safety incomes can reach quickly.

Will withholding on my OT checks go down because of this?

No. The deduction doesn't change withholding or FICA during the year (per Pub 15 mechanics and Notice 2025-69). Any benefit shows up when you file.

What this actually means for you

This deduction is worth understanding and worth claiming, and for a minority of firefighters with heavy true-FLSA overtime and moderate total income it's a nice check. But the version being repeated around the kitchen table, that overtime is now tax-free, is wrong on every count that matters to a California firefighter. Know the real number before you spend it. And if you want the levers that actually move your tax bill year after year, start with the hub: how California firefighters actually reduce their taxes. For the rest of the money section as it publishes, join the newsletter.

Sources

Golden State Firefighter is not affiliated with any government agency, department, or retirement system.

Adrienne Gaughan
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