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- Employers will be required to include the eligible amount of overtime pay on workers’ W-2s for 2026.
- Nevertheless, it will be worth comparing the amount to your pay stubs to ensure it’s accurate, experts said.
- More than 29 million taxpayers claimed the “no tax on overtime” deduction for the 2025 tax year, and the average amount was more than $3,100, according to the Treasury Department.
Halbergman | E+ | Getty Images
Workers who are eligible for a federal tax break related to their overtime pay may have an easier time claiming it for the 2026 tax year than they did on their 2025 returns.
The IRS has updated its frequently asked questions about the “no tax on overtime” deduction to clarify and expand the information it has provided. There was some confusion about the deduction when 2025 tax returns were filed earlier this year, experts say.
“‘No tax on overtime’ can fit on a bumper sticker, but all of the terms and conditions that apply … naturally led to lots of questions from workers and employers about what kind of overtime is eligible and what kind of reporting is required of employers,” said Andrew Lautz, senior director of federal policy for the Tax Foundation, a nonpartisan research group. “Now there are a lot more details.”
Notably, employers will be required to include the information on workers’ W-2s for the 2026 tax year. This means taxpayers won’t be responsible for determining eligibility or calculating their own deduction as many were for their 2025 return.
“It was complicated this filing season, and I expect employer reporting will make things less complicated for workers,” Lautz said.
Only the overtime ‘premium’ counts toward deduction
The no tax on overtime tax break was included in President Donald Trump‘s One Big Beautiful Bill Act, which was signed into law in July 2025. It was one of several new temporary deductions that taxpayers may be eligible for — alongside those for auto loan interest, tip income and an extra deduction for taxpayers ages 65 or older. All four are in effect for tax years 2025 through 2028.
For the overtime tax break, eligible workers can deduct a portion — up to $12,500 for single tax filers or $25,000 for married couples filing jointly — of qualifying overtime on their tax return. The deduction applies to overtime pay covered under the Fair Labor Standards Act, which says nonexempt employees must be paid at least 1.5 times their normal pay rate for time worked beyond 40 hours per week.
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However, the deduction is only for the “overtime premium” — the one-half portion of that 1.5 rate. For illustration: If a covered worker’s regular hourly rate is $40, and their overtime rate is $60 per hour, only the $20 premium — the amount above the regular rate — counts toward the deduction. The tax break starts phasing out at incomes of $150,000 for single taxpayers and $300,000 for joint tax returns.
The updated IRS FAQs include the requirement that employers put the amount eligible for the deduction on workers’ W-2s, in box 12 using a “TT” code. While it’s possible for an independent contractor to receive a 1099-MISC or 1099-NEC that includes eligible overtime pay, it would be “rare” circumstances causing that, according to the IRS.
The FAQs also clarify that if state law or union agreement requires overtime pay that is different from the FLSA, only the portion mandated under the FLSA qualifies — generally the extra half in the 1.5 times pay rule — for the deduction.
Average deduction for 2025 was more than $3,100
More than 29 million taxpayers claimed the deduction for overtime wages in the latest tax season through the April 15 filing deadline, according to a July 2 release from the Treasury Department. The average deduction was above $3,100, the release says. Additionally, 75% of those filers had income under $100,000 and 96% had income under $200,000.
For tax year 2025, the Treasury Department and IRS waived the employer requirement to separately report the amount eligible for the deduction because systems and procedures weren’t yet in place to capture that information, and the necessary IRS tax forms had not been updated to include it. As a result, many workers had to calculate their own eligible amounts using payroll statements or a final pay stub for the year.
“We had to use people’s pay stubs … and make a best guesstimate as to what the amount of qualified overtime would be,” said Tom O’Saben, director of tax content and government relations for the National Association of Tax Professionals.
If you see a mistake, you can’t say ‘oh I’m going to correct that myself’ … and claim a different deduction amount.Andrew LautzSenior director of federal policy for the Tax Foundation
“All things being equal, it’s entirely possible that the deduction we take in 2026 for overtime could be less than what was taken in 2025 because those calculations could have been wrong,” O’Saben said.
Taxpayers should double-check their 2026 W-2
Even if the overtime pay deduction information does appear on your W-2, it’s worth making sure it’s accurate.
“I’m going to ask my clients to still bring those pay stubs, and let’s spend a few minutes to [check] that number and see if it’s accurate,” O’Saben said.
If it’s not, the worker will need to ask for a corrected W-2.
“If the worker believes that an error has been made in the information their employer provided them for overtime compensation, whether that’s the employer put too much or too little, it’s on the worker to request an updated W-2,” Lautz said.
“If you see a mistake, you can’t say ‘oh I’m going to correct that myself’ … and claim a different deduction amount,” he said.
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