Top Headlines

Feeds

IRS Introduces $12,500 Overtime Premium Deduction for 2026 Returns

Updated (8 articles)

New Above‑the‑Line Deduction Targets Overtime Earnings The “One, Big, Beautiful Bill Act” creates an above‑the‑line deduction allowing individuals to subtract up to $12,500 of overtime premiums per year, or $25,000 for married couples filing jointly, from taxable income [1]. The provision applies to the 2026 tax year and must be claimed before the April 15 filing deadline [1]. It is the first federal overtime‑specific tax benefit since the 1990s.

Only the Premium Portion of Overtime Is Deductible Taxpayers may deduct the extra amount earned for overtime work—for example, the $10 per hour premium when an employee earns $30 for overtime versus $20 regular pay—while the base wage remains fully taxable [1]. The IRS emphasizes that the deduction does not apply to the entire overtime wage, only the premium above the regular rate [1]. Employers are not required to report the premium separately on W‑2 forms.

IRS Allows Alternative Documentation for Premium Calculation Because most W‑2s do not separate overtime premiums, the IRS permits taxpayers to use year‑end pay stubs, payroll summaries, or similar records to calculate the deductible premium for this filing season [1]. The guidance aims to mitigate documentation gaps and streamline claim preparation [1]. Taxpayers are advised to retain these records in case of audit.

Tax Professionals Warn the Deduction Is Not Automatic Mark Steber, chief tax information officer at Jackson Hewitt, advises workers to keep detailed records and consult a tax professional to claim the benefit correctly [1]. Steber notes that the deduction must be manually entered on the tax return and that errors could reduce the refund [1]. He stresses that timely action is essential to meet the April 15 deadline.

Refunds Expected to Rise About 10 % Despite Staffing Shortages Steber reports a roughly 10 % increase in refunds, partly due to the new overtime deduction, and observes that ongoing IRS staffing shortages have not caused widespread processing delays this season [1]. He attributes the higher refunds to the additional above‑the‑line deduction reducing taxable income for eligible workers [1]. Nevertheless, he recommends filing early to avoid any potential backlog.

Sources

Related Tickers

by TradingView

Timeline

Jul 2025 – President Donald Trump signs the One Big Beautiful Bill Act, launching a suite of tax reforms that raise the standard deduction, create a $6,000 senior deduction, expand the SALT cap to $40,000, and introduce new tip and overtime deductions for tax years 2025‑2028 [2][4][6].

Dec 12, 2025 – The IRS announces a temporary $6,000 deduction for taxpayers 65 and older that applies to tax years 2025‑2028, phases out above $75 K (single) or $150 K (joint) income, and notes the extra senior standard deduction rises to $2,050 for 2026 [7].

Dec 17, 2025 – The One Big Beautiful Bill Act raises the 2025 standard deduction to $15,750 (single), $31,500 (married filing jointly) and $23,625 (head of household), lifts the SALT limit to $40,000, adds deductible car‑loan interest, and mandates crypto exchanges to issue Form 1099‑DA by mid‑Feb 2026 [2].

Dec 20, 2025 – Effective Jan 1, 2026, the Act further increases the standard deduction to $16,100 (single) and $32,200 (married filing jointly), permanently raises the child tax credit to $2,200, expands charitable and K‑12 education withdrawals, and ends energy credits, while the tip and overtime exemptions continue through 2028 [5].

Jan 26, 2026 – The IRS opens the 2025 filing season, expects roughly 164 million individual returns, continues Free File, cancels Direct File, and requires the new senior, tip and overtime deductions to be claimed on Schedule 1‑A [4].

Jan 26, 2026 – Treasury projections show the average 2025 refund of $3,167 will rise by about $1,000 per household in 2026, driven by the 2025 tax breaks and unchanged withholding; tax adviser O’Saben advises a modest W‑4 reduction to improve cash flow [1].

Jan 31, 2026 – Tax experts warn that the new tip deduction (up to $25,000) and overtime deduction (up to $12,500) are subject to income phase‑outs and documentation rules; TurboTax CPA Lisa Greene‑Lewis urges early filing to avoid missing refunds, and Miami University CPA Michele Frank stresses the deductions are not tax‑free and require correct Social Security numbers [3].

Feb 18, 2026 – The IRS issues guidance for the above‑the‑line overtime premium deduction, allowing up to $12,500 (individual) or $25,000 (joint) to be deducted, permits pay‑stub documentation, and Jackson Hewitt’s Mark Steber cautions “the deduction isn’t automatic,” noting a roughly 10 % boost in refunds but no widespread processing delays [8].

Feb 2026 (mid‑month) – Crypto exchanges must issue Form 1099‑DA to taxpayers reporting cryptocurrency transactions, as required by the One Big Beautiful Bill Act, to be filed with 2025 returns due by April 15 [2].

Apr 15, 2026 – The filing deadline for 2025 returns arrives; refunds are typically issued within 21 days via direct deposit, and taxpayers must ensure they have claimed the senior, tip and overtime deductions on Schedule 1‑A to capture the projected higher refunds [4][8].

2028 – The temporary $6,000 senior deduction and the tip and overtime exemptions are slated to expire unless Congress extends them, creating uncertainty for retirees and supplemental‑income workers [6][7].

2029 – The expanded $40,000 SALT deduction, enacted for a five‑year period, is set to revert to the pre‑Act limit after 2029, potentially raising tax liabilities for high‑tax‑state filers [2].

All related articles (8 articles)

External resources (17 links)