Update 12/12/25:
After receiving additional guidance, we now have the understanding that any work in conjunction with farming operations would not qualify for the overtime deduction. This means that no employees in an ag operation would be eligible for the overtime deduction, even office and non-field workers.
Datatech will still be addressing the reporting requirements for non-ag businesses, but for most customers, you will not need to do any reporting. For the full definitions of agricultural work click here.
§ 780.105 “Primary” and “secondary” agriculture under section 3(f).
Then there is the secondary meaning of the term. The second branch includes operations other than those which fall within the primary meaning of the term. It includes any practices, whether or not they are themselves farming practices, which are performed either by a farmer or on a farm as an incident to or in conjunction with “such” farming operations (Farmers Reservoir Co. v. McComb, supra; NLRB v. Olaa Sugar Co., 242 F. 2d 714; Maneja v. Waialua, 349 U.S. 254).
What is the Overtime Deduction?
For tax years 2025 – 2028, the OBBBA allows individuals to deduct up to $12,500 of “qualified overtime compensation” (QOC) from their federal income taxes ($25,000 for married couples filing jointly). See the IRS Fact Sheet for complete details.
Under the “One Big Beautiful Bill Act” (OBBBA), agricultural overtime does NOT qualify for the new federal tax deduction. This is because agricultural work is exempt from federal overtime rules according to the Fair Labor Standards Act (FLSA).
Here is a more detailed breakdown of the reason why agricultural overtime does not qualify for the deduction and what employers need to do.
What is Considered "Qualified Overtime Compensation?"
QOC is overtime pay that is required by section 7 of the Fair Labor Standards Act (FLSA). See FLSA Overtime Fact Sheet #23 for more details.
Additionally, only the overtime premium portion of the overtime pay required by the FLSA would qualify for the deduction.
Why Does Agricultural Overtime Not Qualify?
Section 13 of the FLSA clearly exempts agricultural labor from the overtime requirements found in section 7. And because the bill specifically ties “qualified overtime” to the federal FLSA requirements, any overtime earned for agriculture labor is not eligible for the exemption. See DOL Fact Sheet for additional information on what duties are considered agricultural work.
Some states, including California, have passed their own laws to mandate overtime for agricultural workers. However, state-mandated overtime does not qualify for the federal deduction because the law is clear that the compensation must be required at the federal level.
In other words, the deduction only applies to overtime mandated by federal law (FLSA).
Daily Overtime
Since state mandated law does not apply, this also means that any daily overtime wages would not qualify until the employee has gone over the FLSA 40 hour weekly threshhold.
Why Do Employers Need to Understand What Qualifies for the OBBBA Deduction?
Employers who incorrectly report state-mandated agricultural overtime as “qualified” for the deduction, risk penalties from the IRS. Employers also need to be able to explain to their employees why the actual exemption amount is different from what they see on their check stubs.
2025 Tax Reporting
The IRS has not made any changes for the 2025 W-2. The 2026 draft W-2 indicates the amounts will be reported in box 12.
For the 2025 tax year, the IRS is providing transition relief and allows for using a “reasonable method” to estimate and report these amounts.
Employers are still required to provide the “estimated” qualified overtime compensation to employees. In doing so, employees can take advantage of the deduction.
Keep an eye out for future updates on program changes and instructions on how reporting will be handled for the 2025 tax year.