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IRS Guidance on No Tax on Overtime

What the IRS has actually published, what each document does, and which one is out of date.

The short answer

The current IRS guidance is FS-2026-13, issued August 6, 2026 (announced IR-2026-88), which superseded FS-2026-01 from January 2026. It sits alongside Notice 2025-69 (how to compute the 2025 deduction) and Notice 2025-62 (2025 employer reporting relief), and you file on Schedule 1-A. The controlling authority is not any of these — it is the statute, 26 U.S.C. §225. The IRS states that its FAQs are not published in the Internal Revenue Bulletin and will not be used to resolve a case.

The guidance stack, most authoritative first

  • 26 U.S.C. §225Statutecontrolling

    Qualified overtime compensation

    The law itself, added by P.L. 119-21 §70202(a) on July 4, 2025. Sets the $12,500/$25,000 limit, the MAGI phase-out, the SSN and joint-filing conditions, and the termination after 2028. Subsection (a) is the one people miss: the deduction is allowed only for qualified overtime "included on statements furnished" to you — which is what makes W-2 reporting a precondition rather than a formality.

  • FS-2026-13Fact sheetcurrent

    Updates to questions and answers on the qualified overtime deduction

    Issued August 6, 2026 and announced in IR-2026-88. The current FAQ set, in eight topics. It supersedes FS-2026-01, drops the 2025-only material, and adds the parts that did not exist before: federal income tax withholding, detailed W-2 and 1099 reporting duties, compensatory time, and federal-employee rules.

  • FS-2026-01Fact sheetsuperseded

    Questions and answers on the qualified overtime deduction

    The original January 2026 FAQ set, superseded by FS-2026-13 in August 2026. Still widely quoted in secondary coverage. The IRS keeps prior versions available on purpose, so check the FS number before relying on anything you read.

  • Notice 2025-69Noticecurrent

    Determining the deduction for tax year 2025

    How to work out your qualified overtime compensation for tax year 2025, when employers were not required to report it separately. It also provided the relief that let you claim the deduction without a separate W-2 entry — relief that applies to 2025 only.

  • Notice 2025-62Noticecurrent

    Transition relief for 2025 information reporting

    The employer-side counterpart: for 2025, employers and payers were not penalised for failing to report qualified overtime separately on Forms W-2, 1099-NEC and 1099-MISC. This is why 2025 W-2s vary so much.

  • Schedule 1-AFormcurrent

    Additional Deductions

    The form you actually file. Part III handles qualified overtime: you enter the full reported amount, then the form applies the cap and the phase-out. The last line of Part III is your deduction. It attaches to Form 1040 and does not require itemising.

Checked against IRS.gov on 2026-09-17. Guidance on a four-year provision changes; if you are reading this much later, confirm the fact sheet number before relying on it.

Why the fact sheet number matters

Most of what is written about this deduction online was published around the January 2026 FAQ and never updated. That version has been superseded, and the August FS-2026-13 revision was not cosmetic — it added the withholding mechanism, hardened the reporting requirement, and spelled out the federal-employee rules. The IRS deliberately keeps superseded versions online so you can tell which one you are looking at. Check the FS number in the header before you trust a summary, including this one.

The three rules most summaries get wrong

1. From 2026, no W-2 entry means no deduction. 26 U.S.C. §225(a) allows the deduction only for qualified overtime included on the statements your employer furnishes. The 2025 relief that let you compute it yourself does not carry forward. If box 12 code TT is blank or understated, the remedy is a Form W-2c from your employer — and a substitute W-2 (Form 4852) does not work, because it is not furnished under the provision the statute names.

2. An overstated W-2 does not entitle you to more. If your employer reports more qualified overtime than it actually paid you, you may only count what you were actually paid. The reported figure is a ceiling, not a licence.

3. Your employer cannot lower your withholding for you. Overtime remains subject to income tax withholding, and an employer may not reduce it to account for this deduction unless you furnish an updated Form W-4. The 2026 Form W-4 added step 4(b) for the purpose, and the IRS Tax Withholding Estimator was updated to handle it. This is the only supported way to feel the benefit during the year rather than at filing.

Guidance aimed at groups that usually get ignored

FS-2026-13 devotes a full topic to federal employees: FLSA eligibility is recorded on your Standard Form 50 at block 35 (“N” means overtime-eligible, “E” means exempt), OPM administers the FLSA for most federal workers, and the one-half portion of the OPM overtime formula is the qualified amount. It also covers compensatory time — for state and local government employees, comp time earned under section 207(o) is not qualified overtime when it is earned, only when it is later paid out as wages — and confirms that residents of U.S. territories may be eligible, but not for overtime excluded from U.S. gross income.

Read the rule, then run your number

The statute is short enough to read in a few minutes and settles most arguments. Once you have, the no tax on overtime calculator sizes the deduction for your rate and hours, the worked examples show the arithmetic step by step, and how to claim covers the filing mechanics.

IRS guidance — FAQ

What is the current IRS guidance on no tax on overtime?
FS-2026-13, issued August 6, 2026 and announced in IR-2026-88, is the current IRS fact sheet on the qualified overtime deduction. It superseded FS-2026-01 from January 2026. Alongside it, Notice 2025-69 covers how to compute the deduction for tax year 2025 and Notice 2025-62 covers the 2025 employer reporting relief. The controlling authority is the statute, 26 U.S.C. §225.
Can I rely on the IRS FAQs?
Only partly, and the IRS says so itself. Because these FAQs are not published in the Internal Revenue Bulletin, the IRS will not use them to resolve a case, and if an FAQ misstates the law then the law controls. What you do get: a taxpayer who relies on them reasonably and in good faith is protected from accuracy-related penalties to the extent that reliance caused an underpayment. For anything binding, the statute and the published notices come first.
Does the IRS require my employer to report overtime on my W-2?
Yes, from tax year 2026. Employers must separately report qualified overtime compensation in W-2 box 12 using code TT. In the rare case where someone is an employee for FLSA purposes but treated as an independent contractor for tax purposes, it goes on Form 1099-MISC box 14 or Form 1099-NEC box 1d instead. For tax year 2025 there was no such requirement, which is why many 2025 W-2s show the figure in box 14 or not at all.
What did FS-2026-13 change?
It deleted the material that applied only to tax year 2025, clarified the limits and the timing of the deduction, expanded the explanation of FLSA coverage and exemptions, and added three genuinely new areas: federal income tax withholding (including the 2026 Form W-4 step 4(b) route), detailed employer reporting duties with the W-2c correction rules, and a full set of federal-employee questions. It also states plainly that qualified overtime must be separately reported on the W-2 to be deductible.
Where does the IRS explain the double-time rule?
In FS-2026-13, in the question on overtime that is not required by the FLSA. The rule: if your employer pays more than the FLSA requires — double time, a weekend premium, a contractual rate — only the amount minimally necessary to satisfy section 7 of the FLSA is qualified overtime compensation. The IRS works a $20-an-hour, 50-hour example to show it. Our worked examples page reproduces that calculation.

More on the overtime tax deduction

Start at the no tax on overtime overview, size your own number with the deduction calculator, or get the gross-pay math from the time and a half calculator.

Sources

Retrieved 2026-09-17. General information, not tax advice. Rules for 2025–2028 can change; check IRS.gov or a tax professional before you file.