If you plan to take the deduction known as no tax on overtime, the paperwork gets lighter for the 2026 tax year.
For 2025, employers were not required to break out qualifying overtime, so workers were left to reconstruct the figure from their own pay records. Beginning with tax year 2026, employers must report it separately. That makes January the month to look for it on the wage statement, and if the number looks wrong, the place to raise it is the payroll office rather than the tax return.
What qualifies, though, is narrower than the name suggests. According to the Internal Revenue Service, only the premium that federal wage law requires counts — the extra half in time and a half. A worker lucky enough to get double time does not get a bigger deduction. The qualifying amount is half the regular rate either way: $10 an hour on a $20 rate, whether the overtime check says $30 or $40.
The larger surprise is who is left out entirely. The pay has to be overtime required under the Fair Labor Standards Act. A worker not covered by that law, or exempt from its overtime rules, has no qualifying overtime at all, and the agency says other arrangements do not change that. A union contract that provides overtime does not create the deduction. Neither does a company policy paying extra after eight hours in a day, because the federal rule counts hours past forty in a week.
The deduction is capped at $12,500, or $25,000 on a joint return, and it shrinks at higher incomes. Most workers will never test that ceiling. At a $20 regular rate, five overtime hours a week for a year comes to $2,500 — a fifth of the cap.
A deduction is also not a refund. It comes off income rather than off the tax bill, so it returns whatever the filer's tax rate is and no more. Under current law, for a married couple with one child and wages near $49,000, taxed at 10 percent, deducting $2,500 is worth about $250.
Rick Good spent ten years in the newspaper business, including with The News & Observer (Raleigh, NC) and The Greenville News (Greenville, SC). He co-wrote, with Melinda Coleman, Rutledge to Riley: Governors of South Carolina, 1776–Present (Published by The Greenville News), and is the author of Mind Games Trivia #1 (Amazon). He has recently spent 15 years creating original trivia content through Sounds Good Mobile Entertainment and continues that with his new company, SGME Software. He edits The Smart Reader’s money, real estate, and business coverage.
