MEMORANDUM
To:
From:
Date:
Subject:
|
AMFA Members and Local Officers
Rob Cush, Director of Government Affairs
July 15, 2025
“No Tax on Overtime” Rule – Impacts on AMFA Members under a CBA |
Overview:
Section 70202 of the One Big Beautiful Bill (OBBB) Act introduces a new federal tax deduction for certain types of overtime pay, labeled as “qualified overtime compensation.” While this provision aims to deliver tax relief to working Americans, its structure and eligibility criteria significantly limit its application for unionized workers operating under a Collective Bargaining Agreement (CBA)—particularly for members of AMFA.
Key Provisions of the Rule:
- Creates an above-the-line tax deduction for “qualified overtime compensation.”
- Deduction cap: $12,500 for individual filers / $25,000 for joint filers, per tax year.
- Income phase-out begins at $150,000 ($300,000 joint filers), reducing the deduction by $100 for every $1,000 above that threshold.
- Applies only to overtime pay required by the Fair Labor Standards Act (FLSA) and only for the amount paid above the employee’s regular rate.
- Overtime premiums paid due to a union contract (CBA) or state law are not eligible for the deduction.
- Employers must report eligible overtime on a separate line of the employee’s W-2 form.
Implications for AMFA Members:
- Limited Eligibility for Union Workers:
The most significant limitation for AMFA-represented technicians is that the tax deduction does not apply to overtime premiums negotiated through a CBA. Most AMFA contracts secure overtime rates above the federal minimum FLSA standard—typically “time-and-a-half” or higher. Since these rates are contractual, not federally mandated under the FLSA, they fall outside the scope of “qualified overtime compensation.”
- Narrow Benefit Window for Some Members:
Members whose employers pay only the federally required overtime without enhancement through a CBA (a rare situation for AMFA-represented workgroups) could potentially benefit from the deduction—but only if their total income falls below the phase-out threshold and the deduction does not exceed $12,500/$25,000. Most AMFA members will not meet all these conditions simultaneously.
- No Impact on Existing CBA Provisions:
The rule does not alter any existing overtime provisions in AMFA contracts. Our negotiated overtime pay remains enforceable and protected, even if it does not qualify for the new federal deduction. Employers must still pay overtime according to the CBA, regardless of tax treatment.
- W-2 Reporting Requirements:
Employers are now required to report qualified overtime separately on annual W-2 statements. AMFA recommends members carefully review their W-2s to ensure that CBA-based overtime is not misreported as qualified under FLSA to prevent any unintended tax filings or penalties.
Conclusion and AMFA Position:
While the “No Tax on Overtime” rule was introduced with the intent of benefiting working Americans, the narrow scope and exclusion of CBA-negotiated overtime mean that most AMFA members will not benefit directly. The rule privileges employers who provide only the federally mandated minimums, and fails to reward union-represented workers who have fought for and secured better wages and overtime protections.
AMFA will continue to advocate for future legislation that includes all overtime compensation, regardless of whether it is mandated by the FLSA or negotiated through collective bargaining. Fairness should not penalize union strength.
Please contact me with questions or concerns.
Sincerely,
Rob Cush
Director of Government Affairs
