Sense with Cents

The question from a customer was regarding properly calculating FLSA OT — the amount reported for OBBBA purposes (which most call QOC, Qualified Overtime Compensation).

The customer pays their employees 1.5x their regular rate on weekends, even though the employees are not working over 40 hours in a week. In other words, the employer has a generous policy which pays employees more on weekends.

I suspect most would dive in and look at the time card data per week to get the FLSA OT, calculate FLSA RROP (Regular Rate of Pay), and then get the QOC. Of note, it is a good time to remind all what is reported as QOC may or may not have anything to do with the amount of actual OT premium paid. QOC is a specific calculation and is often less than the amount of OT premium paid. (W-2 reporting surprises are not limited to OBBBA — see Greater Than 2% S-Corp Shareholders and Health Insurance for another common one.)

I might have done this too, except I have been thinking about QOC since July 4, 2025 (indeed, on a holiday when the law text was made official). When you spend decades working with the various state and federal OT rules, you instantly see the loopholes in a law like this. And there are many — employees who receive comp time instead of OT pay, employees who work different shifts, employees in states with more generous OT requirements than federal, and employees who get paid OT but are not eligible for OT under federal law, like most ag workers. All of these affect what QOC actually is, which is often far less than what was "sold" in the news (remember, the news said and still often says generalities such as "no tax on OT", rather than the actual truth, "no federal — and maybe no state tax — on OT premium required only under FLSA OT rules").

Instead, I started by looking at whether or not ag workers have special FLSA OT rules. They, in fact, do. In most cases, ag workers are NOT eligible for OT under FLSA rules. So, most ag workers are not eligible for the QOC deduction on their 1040 Sch 1-A. Another huge loophole in a law which the public is learning has plenty of holes.

There is no "sense" with this law, unless you are a payroll "nerd" and are used to reading the law text directly (and as discussed in To AI or Not to AI, even AI tools struggle with the finer points of rules this new). This law is a federal law, and can only affect federal rules. Since federal rules do not require OT for most ag workers, and no exception was made for calculating QOC (the loophole was not "closed"), most ag workers cannot use the new deduction.