Understanding the Overtime Tax Break and Senior Deduction in the One Big Beautiful Bill Act

The recently passed One Big Beautiful Bill Act (OBBBA) brings meaningful tax changes to the federal level — and firefighters stand to benefit directly. Whether you're on shift or retired, two provisions of this new law are worth your attention because they are effective immediately for tax years 2025-2028. 

1. Federal Income Tax Deduction for Overtime Pay 

Under OBBBA, there is a $12.5K deduction for single filers and a $25K deduction for joint filers on qualified OT. This deduction phases out if you have a Modified Adjusted Gross Income (MAGI) of $150K for single and $300K for joint filers.  

Under Section 7(k) of the Fair Labor Standards Act, you qualify for 1.5x regular pay after 159 hours worked for suppression firefighters and 120 hours worked for non-suppression firefighters in a 21-day pay period. This tax deduction applies to the “premium” portion of overtime pay. 

Example: 

Let’s say you earn $40/hr as a fulltime firefighter and fall into the 24% federal tax bracket (now permanent, thanks to OBBBA).  

If you were to work enough to take advantage of the full $25K deduction in 2025 (52 shifts in this example!), you would save approximately $6K in tax liability. 

$25K tax deduction ÷ $480 tax-free in a 24 hour shift of premium OT = 52 shifts (good luck!) 

2. $6,000 Temporary Additional Deduction for those Age 65 and Older 

The OBBBA also introduces a brand-new $6K federal tax deduction for those 65 and older, which phases out if your MAGI is over $75K for single filers or $150K for joint filers. 

Example: 

If you’re a single filer receiving $60K per year in pension income, a pre-tax retirement account distribution could easily put you above the $75K phaseout threshold.  

Missing out on the $6K senior tax deduction while in the 22% tax bracket would result in an added tax liability of $1,320. 

This may be reason to delay claiming Social Security (which would also increase your MAGI) or prioritize pulling from Roth accounts to prevent the unwarranted tax liability. 

Action items: 

• Still working? Plan to track your overtime separately so it’s properly excluded at tax time. Employers are supposed to track and report qualified OT on Form W-2 using a “reasonable method” for 2025 – make sure the numbers add up! 

• Retired or near retirement? Work with your advisor and tax preparer to ensure claiming social security or taking pre-tax retirement account distributions doesn’t unnecessarily put you over the income limit for the $6K additional tax deduction after age 65 

As a financial advisor for firefighters, I’ll be incorporating these new rules into all 2025 tax and retirement planning strategies for my clients. If you want to make the most of these new benefits, let’s talk. You’ve earned every dollar — make sure you keep as much of it as possible.