IRS Clarifies 'No Tax on Overtime' Deduction Rules. What Workers Need to Know
Taxpayers who were unsure whether they qualified or how much they could claim will likely have an easier time when they file their 2026 tax returns, experts say.
TL;DR
- The IRS has clarified rules for the 'no tax on overtime' federal tax deduction.
- For the 2026 tax year, employers must report eligible overtime pay on W-2 forms (box 12, code 'TT'), simplifying the process for workers.
- The deduction applies to the 'overtime premium' (half of the 1.5 times normal pay rate) for nonexempt employees under the Fair Labor Standards Act.
- Maximum deduction is $12,500 for single filers and $25,000 for joint filers, phasing out at higher incomes.
- The deduction is temporary, in effect for tax years 2025 through 2028.
- More than 29 million taxpayers claimed this deduction for the 2025 tax season, with an average deduction of over $3,100.