With the 2025 tax law changes (informally referred to as the “Big Beautiful Bill”), many staff members have reached out to the UN Income Tax Unit regarding the new federal tax deduction for overtime pay.
Specifically, we have received inquiries about Section 225, which allows for a deduction of "qualified overtime compensation" from taxable income. The UN Income Tax Unit recently consulted with the Internal Revenue Service (IRS) to have a clear guideline on this entitlement.
Understanding "Qualified Overtime Compensation"
The IRS has clarified that the Section 225 deduction is strictly tied to the Fair Labor Standards Act (FLSA). To be eligible for this tax benefit, the overtime compensation must meet specific criteria:
- FLSA Coverage: The individual must be covered by the U.S. Fair Labor Standards Act.
- Non-Exempt Status: The individual must be an FLSA-eligible employee (i.e., not exempt from the FLSA’s overtime requirements).
- Qualified Rate: The deduction generally applies to the "premium" portion of overtime pay (e.g., the "half" in a time-and-a-half payment) required under Section 7 of the FLSA.
Implications for UN Staff
Generally, UN employees are not covered by the U.S. Fair Labor Standards Act. Because UN staff members do not fall under the jurisdiction of the FLSA, the overtime compensation received through UN payroll does not meet the definition of "qualified overtime compensation" under Section 225(c).
Conclusion: Based on current IRS guidance, UN staff members are generally not eligible to claim the deduction for overtime compensation on their U.S. tax returns.
Additional Resources
While the UN generally remains outside FLSA coverage, staff members seeking more detailed information on federal labor standards may visit the U.S. Department of Labor (DOL) website:
- DOL Fact Sheet #14: Coverage Under the Fair Labor Standards Act
- IRS Notice 2025-69: Detailed guidance on the Section 225 deduction.
For specific questions regarding your personal tax situation, we recommend consulting with a qualified tax professional.