The Internal Revenue Service has released updated guidance on the “no tax on overtime” deduction, a federal tax break that allows eligible workers to reduce their taxable income based on qualifying overtime compensation. The clarification comes after confusion and complications arose when taxpayers filed their 2025 returns earlier this year.
Under the deduction, which was enacted as part of the One Big Beautiful Bill Act signed into law in July 2025, workers can deduct up to $12,500 for single filers or $25,000 for married couples filing jointly. The deduction applies only to the overtime premium—the additional half of the standard 1.5 times pay multiplier required under the Fair Labor Standards Act for hours worked beyond 40 per week. The benefit phases out at incomes of $150,000 for single taxpayers and $300,000 for joint filers.
A key change for the 2026 tax year is that employers will now be required to report the eligible deduction amount on workers’ W-2 forms using a special “TT” code in box 12. For the 2025 tax year, employers were not required to provide this information, forcing many workers to calculate their own deduction amounts using pay stubs, which sometimes resulted in inaccuracies. According to Treasury Department data, more than 29 million taxpayers claimed the deduction for 2025, with an average deduction exceeding $3,100.
Experts note that the new employer reporting requirement should simplify the claiming process considerably. However, workers are advised to verify that the information reported on their W-2 is accurate and request a corrected form if errors are found. Workers cannot unilaterally adjust the deduction amount on their own; corrections must come from the employer. The overtime deduction is among several temporary tax breaks in effect for tax years 2025 through 2028, alongside deductions for auto loan interest, tip income, and an additional deduction for taxpayers ages 65 or older.
Article Attribution | Read More at Article Source
Article summary produced by Claude AI