OBBB Strategy: Can S-Corp Owners or Officers Qualify for the New Overtime Deduction?

The short answer: Not usually — but possibly, for others.

Why S-Corp Owners Are Excluded

The new "No Tax on Overtime" deduction only applies to employees covered by the Fair Labor Standards Act (FLSA).

S-Corp shareholder-employees are typically excluded from FLSA protections — because they effectively control their compensation and schedule. So even if you pay yourself hourly and work 60 hours/week, that OT won’t qualify.

IRS and courts look at substance over form, and paying yourself “overtime” is viewed as a tax avoidance maneuver, not legitimate compensation structure.

What About a Spouse or Other Officer?

Here’s where things open up:

  • If your spouse or another officer doesn’t control the company, and

  • They’re actually performing work (e.g., operations, admin, customer support), and

  • They’re classified as a non-exempt W-2 employee, and

  • You track hours accurately and pay real 1.5× OT…

Then yes, they could be eligible for the deduction — even if they’re an officer on paper.

Key Factors That Help:

  • They’re not a shareholder

  • They don’t set their own schedule or compensation

  • They don’t manage payroll or approve their own hours

  • You use a third-party payroll system

  • You document their role and duties in writing

Being an “officer” doesn't automatically disqualify someone. It’s about who controls the business and whether the OT is genuine.

If you're running an S-Corp and:

  • You employ a spouse or adult child in a real role (e.g., front desk, billing, ops),

  • You pay them hourly and let them work real overtime,

  • You document everything carefully...

→ You could save $3,000–$6,000/year in federal tax (plus the payroll tax deduction).

But if they’re co-owners or signers on everything — it’s probably not worth the audit risk.