The IRS announced that Forms W-2, 1099-NEC, 1099-MISC, and 1099-K will be updated for the 2026 to 2028 tax years to include separate reporting of qualified overtime compensation. As a result, only overtime pay that's separately reported on these forms will be deductible beginning with the 2026 tax year.
No Tax on Overtime is a provision that was included in a larger tax reform bill that passed in July 2025. It allows certain workers to deduct up to $12,500 in qualified overtime compensation from their taxable income on their federal income tax return. Joint filers can deduct up to $25,000.
For tax year 2026, the standard deduction increases to $32,200 for married couples filing jointly. For single taxpayers and married individuals filing separately, the standard deduction rises to $16,100 for tax year 2026, and for heads of households, the standard deduction will be $24,150.
On July 4, 2025, Congress enacted US Public Law 119-21, also known as the One Big Beautiful Bill Act. In that law, there is a provision called “No Tax on Overtime.”
New tax brackets for 2026
The amount of taxes you will pay depends on how much you make each year. Income under $58,523 will be taxed at 14 per cent. Incomes from $58,523 to $117,045 will be taxed at 20.5 per cent.
Washington, D.C.—Workers receiving their first paychecks of 2026 are finding them bigger than ever thanks to the Working Families Tax Cuts spearheaded by U.S. Senate Finance Committee Chairman Mike Crapo (R-Idaho).
The new regime, in return, offers a simplified rate structure and the increased rebate up to an income of Rs.12 lakh under Section 87A of the old Act (Section 156 of the new Act).
Overview of the OBBB's No Tax on Overtime Provisions
Eligible employees can claim the deduction on their federal tax returns starting with the tax year 2025 through 2028. Qualified overtime compensation applies to the portion of overtime pay that is a bonus or premium over regular wages under FLSA.
The changes announced are: From 1 July 2026, the 16% tax rate, which applies to taxable income between $18,201 and $45,000, would be reduced to 15% From 1 July 2027, this tax rate would be further reduced to 14%.
To avoid the 22% tax bracket (or any higher bracket), focus on reducing your taxable income through strategies like maxing out 401(k)s and HSAs, deferring bonuses, tax-loss harvesting, smart charitable giving, and strategic asset location, understanding that higher rates only apply to income within that bracket, not your entire income.
This amount is also commonly referred to as the taxable maximum. For earnings in 2026, this base is $184,500. The OASDI tax rate for wages paid in 2026 is set by statute at 6.2 percent for employees and employers, each.
On July 4, 2024, President Trump signed the “Big Beautiful Bill,” which contains two provisions that provide federal income tax deductions on both tips and overtime compensation beginning January 1, 2025, through December 31, 2028.
Taxing overtime is generally seen as bad policy because it creates inequity, potentially discourages work, benefits the wealthy more, distorts labor markets, reduces vital tax revenue for public services, and can harm future Social Security benefits, all while failing to address underlying wage issues effectively. It makes tax codes complex, allowing high earners to exploit loopholes by converting salary to tax-free overtime, and can incentivize companies to overwork employees rather than offer raises, harming worker well-being.
Yes. The no tax on overtime bill was included in the One Big Beautiful Bill that President Trump signed into law in July 2025. This new law creates a first-of-its-kind tax exemption for certain overtime pay, effective beginning in tax year 2025.
The truth is that your overtime pay is taxed the same as your regular pay. The reason more tax might be withheld is that your total income for the pay period has increased, potentially making it look like you're being taxed more.
In excess of 12 hours in a workday, or. In excess of 8 hours on the seventh consecutive workday in a workweek.
New tax brackets, higher standard deductions and expanded credits are now in effect — changes that could boost paychecks and lower income taxes for many Americans in 2026 and beyond.
The United States estate and gift tax exemption will increase to $15 million per person on January 1, 2026, with annual increases for inflation each year beginning in 2027. Consider utilizing the increase in your current estate planning.
Yes, many individual provisions of the Trump-era Tax Cuts and Jobs Act (TCJA) from 2017 are set to expire at the end of 2025, reverting tax law to pre-2017 levels unless Congress acts, with key changes including the standard deduction, SALT deduction cap, and estate tax rules set to change, although legislation like the "One Big Beautiful Bill Act" (OBBBA) has since extended some of these cuts into the future, changing the original expiration cliff.