Why I Believe Federal Firefighters Can Deduct Their Overtime Premium

A significant new tax law, the One Big Beautiful Bill Act (OBBBA), has introduced a potential tax deduction for overtime income that could benefit federal firefighters and other federal employees.

The New Law

The OBBBA, signed into law in early 2025, includes a provision that allows certain workers to deduct a portion of their overtime compensation from their taxable income. While the law was primarily aimed at private sector workers, the language is broad enough that it may apply to federal employees as well.

Why Federal Firefighters May Qualify

Federal firefighters often work significant overtime due to the nature of their work—24-hour shifts, emergency response requirements, and mandatory coverage needs. This overtime is typically paid at time-and-a-half, meaning half of that overtime pay is the "premium" above regular wages.

The OBBBA's overtime deduction applies to this premium portion. For a federal firefighter earning $30/hour regular pay, overtime is paid at $45/hour. The $15 premium on each overtime hour may be deductible under the new law.

Potential Tax Savings

The tax savings can be substantial. Consider a federal firefighter who works 400 hours of overtime in a year at a $15/hour premium:

• Overtime premium: 400 hours × $15 = $6,000
• Tax savings (22% bracket): $6,000 × 22% = $1,320
• Additional FICA savings: $6,000 × 7.65% = $459
• Total savings: $1,779

Important Considerations

While I believe federal firefighters qualify for this deduction, there are several important points to note:

• IRS Guidance Pending: The IRS has not yet issued formal guidance on how this deduction applies to federal employees. My interpretation is based on the statutory language, but official guidance may differ.
• Documentation Required: You'll need clear documentation showing your regular hourly rate and overtime premium. Your LES (Leave and Earnings Statement) should provide this information.
• Filing Strategy: Given the uncertainty, I recommend discussing this with a tax professional who understands federal employment before claiming the deduction.
• Audit Risk: As an early interpretation of new law, there is some audit risk. However, if properly documented and based on a reasonable interpretation of the statute, this is a defensible position.

Other Federal Employees Who May Benefit

This deduction isn't limited to firefighters. Other federal employees who regularly work overtime may also qualify:

• Law enforcement officers (Border Patrol, FBI, CBP, etc.)
• Air traffic controllers
• Emergency medical technicians
• Correctional officers
• Any FLSA-covered federal employee who receives overtime premium pay

Next Steps

If you're a federal firefighter or other federal employee with significant overtime, I recommend:

1. Gather your LES statements showing overtime hours and rates
2. Calculate your potential overtime premium for the year
3. Consult with a tax professional familiar with federal employment (like me!) to discuss your specific situation
4. Monitor IRS guidance as it becomes available

My Professional Opinion

Based on my reading of the OBBBA's statutory language, I believe federal firefighters have a strong legal basis to claim the overtime premium deduction. The law doesn't explicitly exclude federal employees, and the policy rationale—reducing the tax burden on workers who put in extra hours—applies equally to public and private sector workers.

However, as with any new tax law, there is uncertainty until the IRS issues formal guidance. I'm comfortable taking this position for my clients, provided they understand the risks and have proper documentation.