No Tax on Overtime: What It Means (and Doesn’t) for Ag Employers

Congress’ new One Big Beautiful Bill Act (OBBBA) created a lot of buzz with its promise of “No Tax on Overtime.” The idea sounds simple — workers can deduct their overtime pay from federal taxes — but if you’re in agriculture, here’s the headline: this new federal deduction does not apply to you or your crews.

Below, we break down what’s changing, why most farmworkers won’t qualify, and what you should do now to prepare for 2025 reporting.

Key takeaways

• The “No Tax on Overtime” deduction is available only for overtime required under federal law (FLSA).

• Agricultural employers are exempt from the FLSA’s overtime rules, so ag overtime pay does not qualify.

• Even if your state (CA, WA, NY, CO, etc.) requires overtime, state OT is not eligible for this federal tax break.

• No W-2 or 943 form changes are expected for 2025. Expect IRS guidance and possible updates to 2026 forms.

• You don’t need to report “qualified overtime compensation” on federal filings — but it’s wise to set worker expectations early to avoid confusion.

What’s changing

Beginning with the 2025 tax year, employees who earn federally qualified overtime can deduct up to $12,500 ($25,000 for joint filers) in eligible overtime pay on their tax return. The deduction phases out for individuals earning above $150,000 ($300,000 for joint filers) and is available to both itemizers and standard deduction filers.

Employers will eventually need to report “qualified overtime compensation” to the IRS and to employees via W-2 or similar forms — but the IRS has said it will provide transition relief for 2025 as systems are updated.

Why ag overtime doesn’t qualify

Under federal law, FLSA overtime requirements don’t apply to agriculture. That means any extra pay you provide for hours beyond 40 (or 60, or any other threshold) is not considered “qualified overtime compensation.”

Even if your state mandates overtime — for example, California’s phased-in OT thresholds — those are state requirements, not federal. Because this new deduction is tied specifically to FLSA rules, your workers’ ag OT wages won’t count.

What you should do now

1. Communicate clearly with your crew. When workers hear about “no tax on overtime,” it’s natural for them to ask if it applies to them. Let them know this federal change doesn’t cover agricultural overtime, at least for now.

2. Review your federal filing setup. Seso supports both 941 (quarterly) and 943 (annual ag employer) filings. While there’s no new reporting requirement yet, confirm which form your business uses and ensure it reflects your ag status correctly.

3. Stay tuned for 2026 updates. The IRS may add a new box or code to W-2s next year for reporting qualified overtime. We’ll keep you posted on what, if anything, ag employers need to do.

Bottom line

For most farms, there’s no change to how you handle overtime pay or tax reporting in 2025. But communication matters — setting expectations now will save you and your workers confusion next tax season.

If you have questions about how this affects your business, or want help confirming your filing setup, reach out to the Seso team at sales@sesolabor.com. We’re here to make sure your payroll and reporting stay simple, compliant, and stress-free.