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IRS Breaks Down Overtime Deduction Rules Ahead of Tax Season
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Subscribe27 JAN 2026 / IRS UPDATES
The One Big Beautiful Bill Act introduced a temporary overtime deduction for tax years 2025 through 2028, allowing individuals to deduct 'qualified' overtime compensation. However, the IRS has not updated W-2 forms to reflect this change, leading to potential confusion and complexities for tax professionals and taxpayers. These changes will predominantly affect hourly employees in sectors such as retail, manufacturing, and administration, with a cap for the deduction at $12,500 per return or $25,000 for married couples filing jointly. The deduction will begin to phase out at $150,000 of adjusted gross income for single filers and $300,000 for joint filers.
Overtime pay usually feels simple. You work late, you get time and a half, you move on. Then Congress adds a brand-new deduction, the IRS skips updating the W-2, and tax season opens anyway. Suddenly, everyone is staring at pay stubs as if they were...
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