Tag: IRS

IRS Updates Overtime Deduction Rules

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by LICA-National

The Internal Revenue Service (IRS) released on August 6, 2026, updated frequently asked questions (FS-2026-13, FAQs) for employers and employees on how to calculate qualified overtime compensation for purposes of the overtime pay deduction. The new FAQs confirm that the 2025 transition relief will not be extended and emphasize the need for extremely thorough federal overtime analysis when calculating qualified overtime compensation for 2026. Employers must identify the portion of compensation that satisfies the FLSA overtime requirements, calculate the applicable overtime premium using the FLSA regular-rate rules and separately report qualifying amounts on Forms W-2.


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Guidance Issued on Reporting Tax Deduction for Overtime Pay

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by LICA-National

The IRS announced that, for tax year 2025, employers will not face penalties for failing to separately report qualified overtime compensation. The One, Big, Beautiful Bill Act (OBBBA) specifically allows eligible employees to deduct a certain amount of qualifying overtime pay from their federal taxable income for 2025-2028 tax years. This transition relief applies only for 2025, as Forms W-2 and 1099 will not be updated to reflect the new overtime reporting requirements until later years. Employers may still choose to provide separate overtime details to help employees claim new deductions, but it is not mandatory for 2025. Most non-exempt, hourly workers are eligible for the deduction. Industries mentioned as potential beneficiaries in preliminary guidance include construction.


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