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The One Big Beautiful Bill Act (OBBBA) introduces the “No Tax on Overtime” rule. While it doesn’t change how you run payroll, it directly affects your employee\u2019s federal income tax liability and imposes new documentation requirements on you, the employer.<\/p>\n
Here is what every household employer needs to know about the change:<\/p>\n
Signed into law in July, the OBBBA is a large bill with one key update affecting household employment:<\/p>\n
Federal income tax will no longer apply to the overtime premium portion of certain qualifying overtime wages.<\/strong><\/p>\n This change is retroactive to January 1, 2025, and is scheduled to remain in effect through 2028.<\/p>\n To benefit from this deduction, the overtime must meet the standards set by the Fair Labor Standards Act (FLSA)<\/a>. For household employment, this only applies when:<\/p>\n If your live-out nanny works 45 hours, the extra 5 hours qualify as FLSA overtime. The overtime premium (the extra \u2018half\u2019 pay of their \u2018time-and-a-half\u2019 rate) for those 5 hours is now federally tax-deductible for the employee.<\/p>\n It is crucial to understand that many forms of overtime commonly paid in household employment do not qualify for this new federal tax break. These ineligible wages include:<\/p>\n While you still must pay these amounts based on state law or your employment agreement, the employee cannot claim the federal tax deduction on those premium payments.<\/p>\n This is a direct benefit for your household staff: they can deduct the federal overtime premium from their gross income, reducing their final federal tax liability.<\/p>\n Employees who expect to earn substantial qualified overtime may want to adjust their tax withholdings now to account for a larger expected deduction when they file.<\/p>\n The core payment process remains unchanged, but you now have a new documentation duty to fulfill so your employee can claim the benefit.<\/p>\n For 2025 Earnings<\/strong> Starting in 2026<\/strong> The OBBBA offers a valuable new tax benefit for household employees who regularly work more than 40 hours per week. For household employers, it translates into a new documentation and reporting requirement to ensure compliance. To ensure you are compliant with the new rules and reporting requirements, contact us today at (800) 929-9213 or book a\u00a0complimentary, no-obligation consultation<\/a>.<\/p>\n Get our complimentary guide and learn everything you need to know about paying your employees legally and filing your taxes the right way.Defining “Qualified FLSA Overtime”<\/h2>\n
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What Overtime is NOT Eligible?<\/h2>\n
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How This Impacts Your Household Employee<\/h2>\n
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New Requirement as a Household Employer<\/h2>\n
\nYou must provide your employee with a written statement showing the total amount of FLSA overtime premiums paid during the year. You must also report this total amount to the IRS. In the coming months, the IRS will provide additional information explaining the process for 2025.<\/p>\n
\nThis amount will likely be reported in a new, dedicated box on Form W-2, similar to how other tax-exempt benefits are currently documented.<\/p>\nIn Conclusion<\/h2>\n
Download The Complete Guide to Household Payroll<\/h2>\n
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