By now, you’ve probably heard the buzz around the Big Beautiful Bill. It’s a massive federal law that rolled a bunch of changes into one package, from tax cuts to government reforms. But what does it actually do for firefighters like you? In short, it changes some tax rules and federal pension contributions in ways that could put more money in your pocket, or require you to fork out more in some cases.
Let’s start with the good news: tax breaks. The Big Beautiful Bill extends the 2017 tax cuts (which were set to expire) and adds new perks specifically designed to help workers, including firefighters. The International Association of Fire Fighters (IAFF) even endorsed these tax provisions, calling them “common-sense” measures to improve firefighters’ financial well-being.[1] Below, we’ll break down the key points and what they mean for your wallet and retirement.
More Take-Home Pay Today: Tax Cuts and Deductions
The Big Beautiful Bill’s headliners are tax changes that could boost your take-home pay, something every firefighter can appreciate. Here are the two big tax tweaks:
SALT Cap Jumps, Helping High-Tax Areas
If you live in a place with steep property taxes or state income tax (think New York, New Jersey, California, and the like), you’ve probably felt the pain of the old SALT deduction limit. Previously, you could only deduct up to $10,000 of your state and local taxes on your federal return – even if you paid much more. This law quadruples that cap to $40,400.[1] Now, more of your hard-earned money spent on property levies or state tax can be written off, up to that higher limit.
Why does this matter for your retirement? Well, if you’re in a high-tax state, this change could mean thousands in tax savings each year. That’s money you could funnel into your 457 plan, IRA, or other retirement savings. For example, a firefighter in New Jersey or California who pays $20,000 in combined state and local taxes could now deduct that full amount (since it’s under $40k), whereas before they would have been capped at $10k.
SALT Deduction Savings Calculator
Calculate how much the increased SALT cap could save you in taxes
Your SALT Deduction Analysis
Disclaimer: This calculator provides estimates based on the information you enter and current tax law. Actual tax savings may vary depending on your complete tax situation, filing status, and other deductions. The SALT deduction cap increase is part of current legislation and may change. Please consult with a qualified tax professional for personalized advice regarding your specific tax situation.
With a higher SALT deduction, some of you might find it worthwhile to itemize your deductions again. Since 2018, many middle-class folks have taken the standard deduction because the $10k SALT cap limited itemized deductions. But if you’re paying far above $10k in local taxes, the new $40,400 cap combined with your mortgage interest and other deductible expenses could tip the scales. It’s worth re-checking your tax strategy, so talk to a tax advisor if you’re unsure.
Tax-Free Overtime (Time to Put Those Extra Shifts to Work)
Overtime is often a significant part of a firefighter’s income. Recognizing this, the Big Beautiful Bill includes a temporary tax break on overtime pay from 2025 through 2028. Here’s how it works.
If your individual income is below about $160,000, you get to deduct your overtime earnings from your taxable income above the line. “Above the line” means it comes off your gross income before you calculate deductions or credits, so you can take this deduction even if you use the standard deduction. In effect, it makes your overtime tax-free for federal income tax purposes. That means you’ll still pay Social Security and Medicare taxes on it.
Think about that. If you pull an extra $5,000 in OT one year, that’s $5,000 you won’t pay federal income taxes on. If you’re in the 22% tax bracket, this could save you roughly $1,100 in taxes for the year. Got $10,000 in OT? That’s about $2,200 saved. This is a big deal for firefighters who rely on overtime to beef up their paychecks.
But before you start volunteering for every overtime slot available, a word of advice: make that extra money count. In many fire departments, overtime doesn’t count toward your pension calculations since it’s usually your base salary or a fixed formula. So, a smart move could be to invest your overtime windfall.
Tax-Free Overtime Calculator
Calculate your tax savings and investment potential from tax-free overtime (2025-2028)
Your Overtime Tax Benefits
Important: This calculator estimates benefits from the temporary overtime tax deduction (2025-2028). Investment projections are hypothetical and assume consistent contributions and returns. Actual investment performance may vary. This deduction applies to federal income tax only - you'll still pay Social Security and Medicare taxes on overtime. Consult a tax professional for personalized advice.
For example, let’s say you decide to invest the $5,000 in tax-free OT pay each year into a retirement account or brokerage account. If you earn a 7% average annual return, after 20 years you could be looking at roughly $200,000 added to your nest egg. That’s the power of letting your overtime work as hard as you do. (And if your overtime does count toward your pension in a rare case, that’s icing on the cake – but don’t bank on it unless you’ve confirmed your department’s rules.)
Tax breaks like the SALT cap hike and OT deduction give firefighters a chance to shore up their finances now. Next, let’s look at how the Big Beautiful Bill affects your actual retirement benefits – namely, pensions and what you should plan for in the long run.
Steady as She Goes: Pension Changes (and What Stayed the Same)
Whenever a big federal law comes around, public employees get a little nervous about pensions. This bill had some proposals that initially caused a stir – especially for federal firefighters – but here’s the bottom line: if you’re a firefighter counting on a pension, your core benefits remain largely intact. Let’s unpack that.
Your Pension Formula is Unchanged
First, the good news: the way your pension is calculated did not change under the new law. There was talk in Washington about switching the federal pension formula from a “High-3” average salary to a “High-5” (which would generally lower your pension payout). However, that change was not applied to firefighters in the final legislation.[2] For those in federal service under FERS, your pension is still based on your highest three years of pay, and most state and local firefighter pensions also continue to use their existing formulas. In other words, no news is good news here – you can breathe easy that the retirement checks you’re working toward weren’t cut by a sneaky formula tweak.
Federal Firefighters Contribute More (Check Your Pay Stub)
Now, for those of you who are federal firefighters (for example, wildland firefighters, military base firefighters, or any first responder under the FERS retirement system): be prepared to chip in a bit more towards your pension. The Big Beautiful Bill requires all federal employees to contribute 4.4% of their salary into the FERS pension plan, phased in over a couple of years.[3] For many current fed firefighters, that’s about a 3.3% increase in contribution rate, effectively a small pay cut, since a larger slice of your paycheck will go into the pension fund.[3]
If you’re a federal firefighter who was contributing around 1.3% (typical for those hired before 2013) or 3.6% (for those hired in 2013) of your salary, you’ll gradually move up to 4.4%. Starting in 2026, your contribution ticks up, and by 2027, you’ll be at the full 4.4%. That means a little less take-home pay each pay period. For example, a federal fire captain earning $80,000 might see their annual take-home reduced by roughly $2,000 once the changes are fully in effect.
The silver lining? Your pension benefits themselves aren’t being reduced. You’re paying more now, but you’ll still get the same pension calculation and benefits you were promised – and the extra contributions help ensure the fund’s solvency. Think of it as putting a bit more “wood on the fire” now so that it keeps burning brightly when you retire.
Also worth noting: earlier drafts of the bill floated eliminating the special FERS annuity supplement (a bridge payment that certain federal retirees – like law enforcement and federal firefighters – get until Social Security age). Fortunately, that cut did not happen in the final law, so if you were on track to get that supplement, it’s still in place. This is crucial for federal firefighters who often retire earlier due to mandatory age limits or the physical demands of the job. Keeping the supplement means you won’t be left in the lurch before Social Security kicks in.
New Hires & Job Security (A Special Case for Federal Newcomers)
One more wrinkle for future federal firefighters (and other federal employees hired after the bill’s enactment): the law introduces an optional new employment status. New hires can choose to become “at-will” employees in exchange for a lower pension contribution rate. That means if you opt in, you’d keep more from your paycheck now but give up certain civil service job protections (like the ability to appeal a wrongful termination). If you don’t opt in, you’ll pay the higher contribution (the full FERS rate plus an extra 5% per the law) to retain the traditional protections.[2] This is a complex and highly personal decision for anyone it affects. Essentially, it puts a price tag on job security.
For most current firefighters, this won’t directly affect you – it’s mainly something incoming federal employees will need to weigh. But it’s good to be aware that the landscape is shifting. If you have a son or daughter entering federal service, or you yourself move into a federal fire job, you’ll want to get detailed advice on this choice. For everyone else (municipal and state firefighters), rest assured this particular issue doesn’t touch your day-to-day; your employment rights and contributions are determined by your city/state and remain the same.
We’ve covered the major changes – tax breaks that leave more cash in your wallet and some adjustments (mostly for federal folks) in what you pay toward retirement. Now the big question is: what should you do with this information? In the next section, we’ll dive into actionable steps to strengthen your retirement plan in light of the Big Beautiful Bill.
Planning Ahead: Make the Most of the Changes
Knowledge is power, but action makes the difference. With the Big Beautiful Bill now law, here are some concrete ways you can adjust your financial strategy:
- Put Those Tax Savings to Work. If the higher SALT deduction or the overtime tax break means you’re paying less in taxes this year, be intentional with those savings. Maybe increase your contributions to your 457(b) deferred comp plan or IRA by the amount you’re saving in taxes. You were willing to live without that money (since it would have gone to taxes), so slide it straight into your retirement fund. This way, your extra take-home doesn’t just get eaten up by day-to-day expenses – it’s building your future.
- Consider Adjusting Withholding or Estimates. With new deductions like tax-free overtime, you might end up over-withholding on your W-2. It could be worth adjusting your tax withholding at work so you don’t give the IRS an interest-free loan throughout the year. The goal is to get that money into your pocket now (where you can save or invest it) rather than as a big refund later. If you’re not sure how to tweak it, a tax professional can help you dial in the right number of allowances or additional withholding.
- Leverage the OT Deduction Window. The overtime deduction is currently set to expire after 2028. That gives you a few years to take advantage. If you’re considering taking on extra shifts to bolster your bank account for retirement, now’s a prime time. But have a plan: maybe earmark all overtime pay for a specific goal – e.g., “This goes into my Retire Early Fund.” Like we mentioned, investing overtime earnings for even 5–10 years could substantially pad your nest egg. Discipline is key – treat overtime pay as untouchable for daily spending, and automate its transfer to a savings or investment account.
- Mind Your Budget if You’re a Fed. Federal firefighters should prepare for slightly leaner paychecks once the higher pension contributions kick in. Look at your budget: can you trim a little to compensate for that ~3% reduction in take-home? It might be a good time to eliminate an unnecessary expense or shop around for cheaper car insurance, for example. The sooner you adjust, the less of a shock it’ll be when the change shows up on your LES (Leave and Earnings Statement). On the bright side, remember that these extra contributions are still your money – they’re essentially being socked away for your future in the pension fund.
- Stay Educated on Benefits. If there’s one constant in the firefighter world, it’s that things change – whether it’s tactics on the fireground or rules about your benefits. Make it a point to stay informed. This new law came with a lot of hype and some confusing details, but you took the time to read through how it affects you (nice job, by the way!). Keep that habit. Subscribe to updates from reliable sources (the IAFF, your state firefighter association, or even our own Protection Red newsletter). Knowing about changes early gives you more time to adapt your plans.
- Review Your Retirement Game Plan. With the landscape shifting, it’s a perfect moment to revisit your retirement strategy. Are you on track to retire when you want to? How will these tax savings or new costs factor into your timeline? For instance, if you’re getting extra cash thanks to the tax cuts, maybe you can bump up your retirement date by a few months or retire with a slightly bigger cushion. Conversely, if you’re a federal firefighter now contributing more, maybe plan on working a tad longer or saving extra to make up the difference in take-home pay. Small tweaks now can lead to big results later.
- Use Resources Tailored to Firefighters. Finally, remember that you’re not alone in this. There are financial advisors (like us here at Protection Red) who specialize in firefighters’ finances. From understanding how your pension integrates with Social Security or a second career, to figuring out insurance solutions for job-related risks, don’t hesitate to reach out for guidance. Sometimes a one-hour consultation can clarify months of worry and set you on a confident path.
Ready for a Secure Future
The Big Beautiful Bill has changed some of the rules of the game, mostly to your advantage with tax breaks, and with a few new considerations if you’re in the federal system. By staying informed and proactive, you can turn those changes into opportunities.
In the end, our mission here (just like yours on the job) is to protect and serve those who protect and serve our communities. That means helping you achieve a secure and prosperous financial future, even as laws and regulations evolve. Take advantage of the tax relief to strengthen your finances, stay aware of how policy tweaks affect your benefits, and keep your retirement plan as dynamic as the environment you work in.
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