The IRS has updated its guidance on the new federal tax deduction for qualified overtime pay, giving employers more detail on what they will need to report beginning with the 2026 tax year.

Under the new rules, qualified overtime generally must be reported separately on employees’ Form W-2. The deduction applies only to the overtime premium required under federal law, not the employee’s full overtime wages.

Employees may deduct up to $12,500 in qualified overtime pay each year, or $25,000 for joint filers, subject to income limits. Overtime wages remain subject to regular income-tax withholding and payroll taxes.

“Overtime is a fact of life on Ohio shop floors, so accurate payroll reporting is going to matter,” said Jacob Sargent, managing director of public policy for the Ohio Manufacturers’ Association. “The updated guidance gives employers a clearer roadmap for getting this right and making sure workers can take full advantage of the new deduction.” 8/12/2026