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The IRS has updated guidance to simplify how workers claim the 'no tax on overtime' deduction for the 2026 tax year.

The IRS has released updated frequently asked questions to clarify the 'no tax on overtime' deduction, a tax break included in the One Big Beautiful Bill Act signed by President Trump in July 2025. For the 2026 tax year, employers will now be required to report the eligible overtime premium on workers' W-2s, reducing the burden on taxpayers to calculate their own deductions. Eligible workers can deduct up to $12,500 for single filers or $25,000 for married couples filing jointly. The deduction applies specifically to the overtime premium—the portion of pay above the regular rate—under the Fair Labor Standards Act. While the tax break lowers federal taxable income, it does not reduce the wages used to calculate Social Security earnings tests. For example, a worker who earns significant overtime may still see their retirement benefits withheld if they exceed the earnings limit, even after applying the tax deduction. The administration announced these updates to ensure clearer reporting and more accurate calculations for taxpayers across the country.

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