The IRS has updated frequently asked questions about the new deduction for qualified overtime compensation, one of the many One Big Beautiful Bill Act tax provisions touted by the Trump administration.
The updated FAQs are available in Fact Sheet FS-2026-13 and revise FS-2026-01, issued in January 2026.
President Donald Trump’s signature tax-and-spending law, which was enacted in July 2025, added a new deduction for qualified overtime compensation. IRS Notice 2025-69 clarified for individuals how to determine the amount of their deduction for qualified overtime compensation for the 2025 tax year.
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The so-called “no tax on overtime” provision is available to certain individuals who are paid overtime compensation under Section 7 of the Fair Labor Standards Act.
The FAQ are grouped under eight topics:
- Topic A: The basics
- Topic B: FLSA overtime-eligibility
- Topic C: Reporting qualified overtime compensation on Form W-2 and Form 1099-NEC or 1099
MISC - Topic D: Federal income tax withholding from wages
- Topic E: Information for employers
- Topic F: Information for employees
- Topic G: Federal employee issues
- Topic H: Other questions and resources
For example, here are the three questions and answers under Topic A: The basics:
Topic A: The basics
Q1. What is the deduction for qualified overtime compensation? (updated August 6, 2026)
A1. The deduction for qualified overtime compensation is an income tax deduction available to certain individuals who are paid qualified overtime compensation required under section 7 of the Fair Labor Standards Act (FLSA) (29 USC § 207). It is available whether the individual itemizes or takes the standard deduction. Overtime compensation not required by the FLSA is not eligible for the deduction.
The deduction for qualified overtime compensation does not mean that overtime compensation is excluded or exempt from gross income. Generally, overtime compensation is not excludible or exempted from wages for purposes of employment taxes including income tax withholding, social security, and federal unemployment taxes.
Q2. What is the deduction amount? Are there limits to the deduction? (updated August 6, 2026)
A2. The deduction is up to $12,500 of qualified overtime compensation earned for the year per individual tax return ($25,000 in the case of a joint return). The deduction is reduced if a taxpayer’s modified adjusted gross income (MAGI) for the tax year exceeds $150,000 ($300,000 for joint filers). For more information see the instructions to Form 1040 (Schedule 1-A).
Q3. When is qualified overtime compensation paid for purposes of the deduction? (added August 6, 2026)
A3. Generally, the same principles that govern when a payment is treated as wages for purposes of income tax withholding apply to determine when qualified overtime compensation is paid by the employer to the employee.
More information about reliance is available on IRS.gov.
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