Public Law 119-21 (the “One, Big, Beautiful Bill Act”) created a new federal income tax deduction for certain overtime pay beginning with the 2025 tax year.  

The deduction only applies to “qualified overtime compensation” required by the federal Fair Labor Standards Act (FLSA). In general, the deductible amount is the overtime premium portion (for example, the extra “half” in time-and-a-half), not the full overtime wages. 

What this means for California farmworkers 

Most California farmworkers are paid overtime because California law requires it, not because federal law does. That matters because employees “employed in agriculture” are generally exempt from FLSA overtime. 

California overtime rules for agricultural workers remain in place (including overtime after 8 hours in a day or 40 in a week, plus seventh-day rules). But because that overtime is typically not “required under” the FLSA, many California farmworkers will not be able to use the new federal overtime deduction. 

What about farmworkers in other states that have overtime for farmworkers?

The same issue arises in other states that require overtime for agricultural employees under state law, such as Colorado, Hawaii, Oregon, and Washington. Even though farmworkers in those states may receive overtime pay, that overtime is generally required by state law, not the FLSA. As a result, state-mandated agricultural overtime in those states is also not eligible for the federal “no tax on overtime” deduction.

What about farm office employees? 

Farm office employees typically are not covered by the FLSA agriculture overtime exemption, and many are entitled to overtime under federal law if they are non-exempt. In those cases, their FLSA overtime premium may be “qualified overtime compensation” for the federal deduction. 

Employer reporting and payroll next steps 

The IRS has issued guidance for 2025 implementation, including how employees may substantiate the deduction and how employers may report qualified overtime compensation. 

What employers need to know 

Talk with your payroll provider now about how they plan to track and report any FLSA-qualified overtime for non-exempt staff. Do not change California overtime practices for agricultural workers based on this tax rule. 

Employers and employees should consult their tax advisor for how the deduction applies to their specific situation.