The Treasury Department and the IRS on Jan. 23 issued a fact sheet containing frequently asked questions related to the new deduction for qualified overtime compensation under the One Big Beautiful Bill Act.
For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the amount that exceeds their regular rate of pay—generally, the “half” portion of “time-and-a-half” compensation—and is reported on a Form W-2 or Form 1099, according to the IRS.
The deduction is up to $12,500 of qualified overtime compensation earned for the year per return ($25,000 in the case of a joint return). The deduction is reduced if a taxpayer’s modified adjusted gross income for the tax year exceeds $150,000 ($300,000 for joint filers). Check Notice 2025-69 for more information on how to calculate MAGI for this purpose.
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The eight FAQs in the fact sheet contain additional guidance about the deduction, provide resources for employees (including federal employees) to assist them in determining whether they received qualified overtime compensation under the Fair Labor Standards Act, and contain useful information regarding the differences in reporting requirements for tax year 2025 and 2026-2028.
For example, question 6 states:
Q6. Will qualified overtime compensation be separately reported to individuals on Form W-2, Form 1099-NEC, or Form 1099-MISC? Doesn’t qualified overtime have to be separately reported in order for an individual to take the deduction?
A6. It depends on the tax year.
- For tax year 2025, employers and other payers are not required to report qualified overtime compensation separately on Forms W-2, 1099-NEC, and 1099-MISC. See Notice 2025-62. For 2025, some employers and other payers may choose to separately report the amount of qualified overtime compensation to employees using box 14 of Form W-2 or to employees or payees through an online portal or on a separate statement. If individuals do not receive a Form W-2 or other statement from their employer or other payer for tax year 2025 that separately reports the amount of qualified overtime compensation, they may use any of the methods described in Notice 2025-69 and the Instructions to Schedule 1-A that are included in the Instructions for Form 1040 to calculate the amount of qualified overtime compensation.
- For tax years 2026 and later years, employers and other payers are required to separately report qualified overtime compensation. Forms W-2, 1099-NEC, and 1099-MISC will be updated to allow employers and other payers to provide separate reporting of an individual’s qualified overtime compensation.
Treasury and IRS previously issued Notice 2025-62 providing penalty relief to employers and other payers for tax year 2025 regarding new information reporting requirements for qualified overtime compensation; and issued Notice 2025-69 for workers eligible to claim the deduction for overtime compensation for tax year 2025.
Photo credit: LPETTET/iStock
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