Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay that is required by the Fair Labor Standards Act.  We have been monitoring the Internal Revenue Service (IRS) website for guidance relating to implementation of this provision, which was included in HR 1,  the final 2025 budget reconciliation bill.

This IRS webpage relating to the budget bill has for some time stated generally that employers required to file information returns furnish statements to employees showing the total amount of qualified overtime compensation paid during the year, and that the IRS will “provide transition relief for tax year 2025 for taxpayers claiming the deduction and for employers and other payors subject to the new reporting requirements.”

While we have been expecting some guidance to issue relating to 2025 but not yet seen it, the IRS has issued a draft form W-2, box 12 of which includes a new code (“TT”) to capture the total amount of an individual’s qualified overtime compensation. This is an “early release draft” and is not yet final.

We will continue to monitor for updated guidance.