Question

As an employer in California, we understand that parts of the overtime tax exemption are slightly different for California employers/employees under the One Big Beautiful Bill Act (OBBA), such as California double time, because the Fair Labor Standards Act (FLSA) does not recognize double time. Also, I understand that under the FLSA, specific industries, such as agricultural companies, may be exempt from overtime requirements.

Are there any other FLSA exemptions we need to be aware of as a payroll provider supporting employers in California and nationwide?

Answer

Overview of the OBBA overtime tax deduction

An OBBA includes a federal income tax deduction related to overtime pay. This deduction applies for tax years 2025–2028.

It allows eligible workers to claim:

• Up to $12,500 in “qualified overtime compensation”
• Up to $25,000 if married filing jointly

This applies to compensation received during the applicable tax year.

Income phase-out thresholds

The deduction phases out based on modified adjusted gross income (MAGI):

• Phase-out begins at $150,000 MAGI
• $300,000 MAGI for married filing jointly

The deduction is not available if MAGI reaches:

• $275,000 for individuals
• $550,000 for married filing jointly

Eligibility requirements

The deduction is allowed for:

• Itemizers
• Non-itemizers

However:

• The individual must include their Social Security number on their tax return
• If an individual married, they must file a joint return to claim the deduction.

Definition of qualified overtime compensation under the FLSA

The law defines “qualified overtime compensation” as:

“Overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act” (FLSA)

This overtime must:

• Exceed the individual’s regular rate
• Be calculated under FLSA standards

Exclusions

Qualified overtime compensation does not include:

• Qualified tips
• Overtime required only under state law and not under federal law

Because of this distinction, some overtime payments required by state law are not deductible under OBBA.

Federal overtime requirements under the FLSA

The law defines “qualified overtime compensation” as “overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act” (FLSA) that exceeds the individual’s “regular rate” (as determined by the FLSA), excluding qualified tips. Overtime compensation that is required under state but not federal law is not “qualified overtime compensation” and thus not deductible.

The Fair Labor Standards Act (FLSA) generally requires employers to pay covered, nonexempt employees:

• 1.5 times their “regular rate” of pay
• For all hours worked beyond 40 hours in a given workweek

Some states have overtime laws that overlap with, but also go beyond, the requirements of the FLSA.

States with overtime rules that exceed federal requirements

For example, some states impose daily overtime rules in addition to weekly overtime requirements. These states include:

Alaska

Employers must pay employees covered by Alaska’s overtime law 1.5 times their regular rate of pay for hours worked:

• More than eight per day, or
• More than 40 per week

California

Employees covered by California’s overtime law must be paid 1.5 times their regular rate of pay for hours worked:

• More than eight in a day, or
• More than 40 per week

Colorado

Employers must pay employees covered by Colorado’s overtime law 1.5 times their regular rate of pay for hours worked:

• More than 12 consecutive hours
• More than 12 hours in a day
• More than 40 hours per week

This applies without regard to the starting and ending time of the workday, excluding duty-free meal periods.

Florida

For manual laborers, Florida law states that a legal day’s work is 10 hours.

Employers must not require manual laborers to work more than 10 hours in a day without extra pay, unless:

• A written contract is signed by the worker and the employer, and
• The contract requires a lesser or greater number of hours of daily labor to be performed.

Nevada

Covered employees who:

• Earn less than 1.5 times the minimum wage, and
• Work more than eight hours in a 24-hour period

are eligible to receive daily overtime at 1.5 times their regular rate of pay.

Oregon

Employers that are mill, factory, or manufacturing establishments must provide overtime pay:

• 1.5 times the regular hourly rate of pay for hours worked
• More than 10 hours in a day
• Or eight hours for some timber-related activities
• As well as any hours over 40 in a week

California double-time requirements

Note that California is the only state with double-time rules.

Overtime pay of double an employee’s regular rate of pay must be provided for:

• Hours worked more than 12 in a day, and for
• Hours worked more than eight on a seventh consecutive day of work

Tools for reviewing state overtime exemptions

Information regarding state law overtime exemptions is available in HR Hero’s State Law Chart Builder.

Within the Chart Builder:

• Under Pay, choose Overtime
• Select the states of interest

The tool will build a concise chart with information about state leave requirements.

Additional research guidance

BLR’s team of subject matter experts also recommend reviewing HR Hero’s Federal and State Topic Analysis for more comprehensive guidance.

Recommended navigation:

Category: Compensation
Topic: Exempt Personnel

Then select the state you want to review.

Additional information can also be found under:

Category: Compensation
Topic: Overtime

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