A taxpayer has gross wages of 100k including 20k of total overtime shown on his last paystub. He defers 30k into his 401k so his Box#1 taxable wages is 70k. Do we use the 20k overtime on schedule 1-A creating a deduction of $6,666 regardless of the money deferred into the 401k? So basically do retirement deferrals need to be considered at all when computing the tax-free overtime? Is an allocation needed since theoretically some of the overtime is included in taxable wages and some is being deferred into the 401k.