IRS Updates 'No Tax on Overtime' Deduction Rules for 2026 Tax Year

Workers eligible for the federal 'no tax on overtime' deduction may find it easier to claim in 2026 due to updated IRS FAQs. Employers must now report eligible overtime amounts on W-2s (Box 12, TT code), simplifying the process for workers compared to 2025.

The deduction, part of President Trump's One Big Beautiful Bill Act (effective 2025-2028), allows eligible workers to deduct up to $12,500 (single) or $25,000 (joint) of the 'overtime premium' (the extra 0.5 of the 1.5x rate). It phases out at $150,000 (single) and $300,000 (joint) incomes.

In 2025, over 29 million taxpayers claimed this deduction, with an average of over $3,100. However, calculations were complex without employer reporting. For 2026, workers should verify the accuracy of W-2 reported deductions.

Experts advise checking pay stubs against W-2s to ensure correct deduction amounts, as self-corrections are not permitted.