The IRS has updated its guidance on the 'no tax on overtime' deduction, which was introduced in President Trump's One Big Beautiful Bill Act. This clarification is particularly important as it addresses confusion that arose during the 2025 tax filing season, where many taxpayers struggled to determine their eligibility and calculate their deductions.
Starting in 2026, employers will be required to report the eligible overtime deduction amounts directly on workers' W-2 forms, which should alleviate the burden on employees who previously had to estimate their deductions based on pay stubs.
The deduction allows eligible workers to deduct up to $12,500 for single filers and $25,000 for married couples filing jointly, but only the overtime premium—defined as the additional pay above the regular rate—counts towards this deduction. In 2025, over 29 million taxpayers claimed this deduction, with an average amount exceeding $3,100.
However, the lack of employer reporting in 2025 led to potential inaccuracies in claimed amounts, which could affect future deductions. Taxpayers are advised to verify the accuracy of the overtime deduction information on their W-2s for 2026 to ensure they receive the correct benefits