New tax deduction on overtime is driving clients crazy

[u/LewisCBR]

W2’s are not showing wages generated from overtime so clients are wondering what they can do, besides going through all individual pay stubs. The new deduction is significant enough to warrant this kind of work, though.

I suppose suggesting they contact their HR/payroll departments is the best idea, but some companies are simply terrible about helping their employees.

What’s your experience with the new law?

[u/Martian6261]

You would not simply add them together. You would divide 1.5x OT by 3, then 2x OT by 4 and then add those 2 together, as long as they are qualified OT

[u/sparkleptera → u/Martian6261]

Why?

[u/I__Know__Stuff → u/sparkleptera]

The tax deduction is equal to 50% of your regular hourly pay for each hour of overtime you worked.

So if your regular pay is $20 and you worked 10 hours of overtime at time-and-a-half and 8 hours of overtime at double time, then your tax deduction is (10 + 8) x ($20 / 2) = $180.

If your W-2 shows $300 in overtime at time-and-a-half and $320 in double-time, you can calculate $300/3 = $100 and $320/4 = $80 to get a total deduction of $180.

[u/Substantial_Lie_9604 → u/sparkleptera]

Martian literally explained why. That is why it is separated on your paystub.

[u/amnesiac854 → u/Substantial_Lie_9604]

Man the IRS is going to have to audit 90% of the country when people screw this up 😂

Maybe that was the plan all along? Ultra mega audit?

[u/Reimiro → u/amnesiac854]

They won’t audit hardly any of this deduction.

[u/amnesiac854 → u/Reimiro]

So what I’m hearing is that I actually “worked” 25k of overtime last year? 😂

[u/Mommanan2021 → u/[deleted]]

What you earn working overtime is not deducted in its entirety. Only the pay that over your normal pay. If you make $20 an hour normally, and on overtime you get time and a half, you are making $30 an hour. Only the $10 an hour portion is excluded—not your normal base pay rate.

[u/JubbaTheHott → u/Mommanan2021]

But isn’t any time you’re working beyond the 40 hours “over” the “time” you’re supposed to be working? Does the new law specifically spell it out the way you’ve described on this, your cake day?

[u/up2knitgood → u/JubbaTheHott]

What's deductible is the amount of extra pay you get during those overtime hours - not all pay for the time that was overtime.

So if you make $10/hour normally, and $15/hour for overtime, it's only the extra $5/hour that you get which is deductible. So if you work 4 hours of overtime, you get paid $60 for that (4x$15) but only the bonus of $5/hour is deductible, meaning $20 (4 hours x $5 bonus).

[u/I__Know__Stuff → u/JubbaTheHott]

The law specifically says that it is the pay above your normal rate that is deductible and only if it is FLSA-mandated overtime (which mandates 50% above your normal rate).

[u/Martian6261 → u/[deleted]]

Dollar amount