Overtime Deduction with Union CBA Rates: How It Works in 2026
Union workers covered by a collective bargaining agreement (CBA) often earn overtime rates that exceed the FLSA minimum of time-and-a-half. A CBA might set double-time for Saturdays, triple-time for holidays, or a higher base rate that produces a larger overtime premium. These higher CBA rates create a distinct dynamic for the IRC Section 225 overtime deduction: the deductible premium is based on your actual regular rate, not a statutory minimum, so CBA workers often generate more deductible premium per overtime hour than non-union workers at the same hourly rate. This post walks through the math with realistic CBA pay structures.
CBA rates vs. FLSA rates
The FLSA sets a floor: non-exempt workers must receive at least time-and-a-half (1.5x their regular rate) for hours worked beyond 40 per week. Many CBAs go further. Common CBA overtime structures include:
- Time-and-a-half (1.5x) for weekday overtime beyond 8 hours or 40 hours per week
- Double-time (2.0x) for Saturday work, seventh-consecutive-day work, or hours beyond 12 in a day
- Triple-time (3.0x) for holiday work in some CBAs
For the IRC Section 225 deduction, what matters is the premium: the amount above the regular rate. A higher CBA overtime multiplier means a larger premium per hour, and a larger potential deduction.
Scenario: Union electrician with CBA overtime
Tony is a journeyman electrician represented by IBEW. His CBA sets a regular rate of $52.00 per hour (wage only, excluding fringe benefits). Overtime beyond 40 hours per week is paid at 1.5x, or $78.00 per hour. He works 300 overtime hours during 2026 and files as single.
The deductible premium is the excess of the overtime rate over the regular rate. For time-and-a-half, that is $52.00 x 0.5 = $26.00 per hour.
Tony's overtime deduction (time-and-a-half CBA rate)
CBA regular rate: $52.00/hr
CBA overtime rate (1.5x): $78.00/hr
Overtime premium: $26.00/hr
OT hours: 300
Total premium: 300 x $26.00 = $7,800
Deduction cap (single): $12,500
Deductible amount: $7,800 (premium is below cap)
Tax savings at 22% bracket: $1,716 in federal income tax
Tony's $7,800 in overtime premium is below the $12,500 cap, so he deducts the full amount. At the 22% marginal rate, he saves $1,716 in federal income tax.
Double-time under a CBA
Now consider that Tony's CBA also specifies double-time (2.0x) for Saturday work. If he works 100 of his 300 overtime hours on Saturdays, those hours earn $104.00 per hour instead of $78.00. The premium on double-time hours is $52.00 per hour (1.0x the regular rate), compared to $26.00 for time-and-a-half.
Tony's deduction with mixed CBA rates
Time-and-a-half hours: 200 x $26.00 = $5,200 premium
Double-time hours: 100 x $52.00 = $5,200 premium
Total premium: $10,400
Deduction cap (single): $12,500
Deductible amount: $12,500 (capped)
Tax savings at 22% bracket: $2,750 in federal income tax
With double-time hours in the mix, Tony's total premium of $10,400 exceeds the $12,500 cap. He deducts $12,500 and the remaining premium is taxed as regular income. This illustrates how CBA double-time rates can push workers to the cap faster than standard time-and-a-half.
What counts as the deductible premium
The deductible premium is always the excess over the regular rate, regardless of how that rate was set. For CBA workers, this means:
- Time-and-a-half premium: 0.5x the CBA regular rate
- Double-time premium: 1.0x the CBA regular rate
- Triple-time premium: 2.0x the CBA regular rate (where applicable)
The CBA regular rate is your actual hourly wage rate, which may differ from the FLSA "regular rate of pay." The FLSA regular rate can include certain non-discretionary bonuses, shift differentials, and piece rates. Your employer's payroll system calculates the precise premium and reports it under W-2 Box 12 Code TT starting in TY 2026.
Note that fringe benefit contributions (health insurance, pension contributions, training funds) negotiated in the CBA are typically not included in the regular rate for overtime purposes. The premium is calculated on the wage portion, not the total compensation package.
Davis-Bacon prevailing wage interactions
Union construction workers on federal or federally funded projects are subject to Davis-Bacon prevailing wage requirements. The prevailing wage sets a minimum total compensation (basic hourly rate plus fringe benefits) for each trade classification in a given locality.
For the overtime deduction, the key figure is the basic hourly rate (the cash wage component), not the total prevailing wage including fringes. The overtime premium is calculated as the excess over this basic hourly rate. Because prevailing wages are often higher than open-shop rates, Davis-Bacon workers may generate a larger premium per overtime hour.
For example, if the prevailing wage for electricians in a given area sets a basic hourly rate of $56.00, the time-and-a-half premium is $28.00/hr. At 300 OT hours, that produces $8,400 in deductible premium, below the $12,500 cap.
Workers who are close to the MAGI phase-out threshold should be aware that prevailing wage jobs can push total income higher. The phase-out begins at $150,000 for single filers and $300,000 for MFJ, reducing the deduction by 10% of the excess.
To estimate your own overtime deduction based on your CBA rates and hours, use the no tax on overtime calculator. For a deeper look at union eligibility rules, see the union workers overtime deduction guide. For the premium-only rule explained in detail, see the overtime premium glossary entry.