The Internal Revenue Service in early August issued updated FAQs on the No Tax on Overtime provision under HR 1, which added a new tax deduction for qualified overtime compensation.
The deduction allows individuals to deduct up to $12,500 of qualified overtime pay annually ($25,000 in the case of a joint return) but may be reduced if a taxpayer’s modified adjusted gross income (MAGI) exceeds $150,000 ($300,000 for joint filers).
Developed in coordination with the Department of Labor and Office of Personnel Management, the updated FAQs replace previous FAQs issued in January 2026 and provide more extensive guidance on overtime eligibility and exemptions under the Fair Labor Standards Act (FLSA), reporting qualified overtime compensation, and federal income tax withholdings from wages.
The FAQs also include a guidance for employers on calculating qualified overtime compensation to be paid to an employee for purposes of the deduction. This includes instructions for alternative methods of computation are used to compute overtime, which may apply to employees of certain residential care facilities.
Unlike its companion provision in HR 1 on No Tax on Tips, IRS has not issued new regulations implementing No Tax on Overtime but rather has been issuing and updating guidance as part of its implementation of this tax deduction.
