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IRS updates ‘no tax on overtime’ deduction rules for 2026
CNBC • • business
Key Points:
- The IRS has updated its FAQs on the "no tax on overtime" deduction, aiming to clarify eligibility and reporting requirements for the 2026 tax year, following confusion during the 2025 filing season.
- Starting in 2026, employers must report the eligible overtime deduction amount on employees' W-2 forms using a "TT" code, relieving taxpayers from calculating the deduction themselves as many did in 2025.
- The deduction applies only to the "overtime premium"—the additional half of the overtime pay rate above the regular hourly wage—and phases out at incomes above $150,000 for singles and $300,000 for joint filers.
- Over 29 million taxpayers claimed the overtime deduction for 2025, with an average deduction of over $3,100; however, employer reporting was waived that year, causing many workers to estimate the deduction manually.
- Taxpayers should verify the accuracy of the overtime deduction reported on their 2026 W-2s and request corrections if necessary, as self-adjusting the deduction amount without an updated W-2 is not permitted.
