08/14/2026
The IRS just updated its guidance on the overtime tax deduction, adding new reporting requirements for employers.
What you need to know:
→ Starting this tax year, the deduction only counts if overtime is separately reported on Form W-2, box 12, code TT
→ Overtime pay still counts as gross income and stays subject to withholding
→ If the reported amount is wrong, employees need a corrected W-2c before they can claim what they're owed
This puts even more pressure on time tracking accuracy. If your solution can't cleanly separate true overtime from regular hours, that gap now shows up as a tax reporting error, not just a payroll headache.
Get the full details: https://bit.ly/4ghMbJD
Workers generally may claim the overtime pay deduction only for amounts reported on Form W-2, Wage and Tax Statement, beginning in tax year 2026, according to updated IRS FAQs. The IRS also clarified that the deduction does not make overtime pay exempt from gross income.