Recently Asked: Federal Firefighter Overtime Deduction Under PL 119-21

I keep getting questions about what qualifies for the overtime deduction under PL 119-21. And I get it—the guidance is new, payroll offices are confused, and there's a lot of conflicting information out there.

But here's the thing: I can't give you a specific answer. I don't know where you work, what state you're in, whether you're federal or state or local, or how your agency handles overtime. That's a conversation you need to have with your tax professional.

What I can do is give you the framework. And the framework comes down to one question: Were you paid an overtime premium, and why?

Your Pay Stubs Tell the Story

Your LES shows what you were paid and why. Look at the earnings codes. If you see hours paid at time-and-a-half, that's overtime compensation. The "half" is the premium portion—and under PL 119-21, that premium is what's potentially deductible.

If you were paid straight time for those hours, there's no premium. No premium means nothing to deduct.

For a detailed breakdown of how the overtime premium is calculated, see my earlier post: IRS Issues New Guidance on Federal Firefighter Overtime Deduction.

IRS Example 6 Doesn't Apply to You (Probably)

IRS Notice 2025-69 includes Example 6 about compensatory time under 29 USC § 207(o). Some people are reading this and thinking comp time payments don't qualify.

Here's the distinction: 207(o) applies to state and local government comp time arrangements. If you're a federal firefighter, you operate under 207(k), not 207(o). The comp time exclusion in Example 6 doesn't apply to federal employees under 207(k).

Comp Time Used = No Premium Payment

If you use comp time for hours in a pay period, those hours aren't being paid at an overtime premium—you're using banked time. No premium payment means nothing to deduct for those hours.

Choosing Comp vs. OT: An Example

Say you pick up a 24-hour extra shift and have to choose between comp time and OT pay.

A GS-8 Step 2 in Las Vegas would earn about $763 for that shift. The deductible premium portion is roughly $254 (one-third). In the 22% bracket, that's about $56 in tax savings.

But let's be real: you're choosing between $763 in wages and a day off. The $56 tax difference isn't the deciding factor. If you're a new hire building leave, or you just want to be home with your family, take the comp time. The tax deduction is a nice bonus when you take OT pay—it's not a reason to work more shifts.

Comp Time Paid Out? That's a Premium Payment.

If you have unused comp time that gets paid out as OT (as required under FLSA), that payout is overtime compensation at the premium rate. The premium portion qualifies.

Why? Because federal firefighters under 207(k) don't have a statutory exemption that treats comp time as an "alternative" to overtime like 207(o) does for state/local governments. Those were still overtime hours—you just deferred the payment. When it's paid out, it's overtime compensation at the FLSA-required premium rate.

Payroll Pays You. They Don't Give Tax Advice.

Your payroll office's job is to pay you correctly. They're not tax advisors, and the FAQ they sent out reflects that.

DFAS will report something on your W-2. But that number may not capture your full qualified overtime. Your pay stubs are your documentation—they show what you were paid and why.

If your tax preparer says you can only claim what's on your LES or W-2, that's a conversation between you and them. Some preparers take that approach. Others will calculate and document the full deduction based on FLSA rules. That's a judgment call about risk tolerance and documentation—not something I can decide for you.

The Bottom Line

You need to know: Were you paid an overtime premium? Why? Your pay stubs answer both questions.

IRS Example 6 about 207(o) comp time doesn't apply to federal employees under 207(k). Comp time used isn't a premium payment. Comp time paid out is.

Work with a tax professional who understands your situation. If you want help with your return, reach out.