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On August 6th, 2026, the Internal Revenue Service (IRS) issued updated Frequently Asked Questions (FAQs) regarding overtime deductions. Specifically, Fact Sheet 2026-13 updates frequently asked questions for qualified overtime compensation (commonly referred to as No Tax on Overtime) under the One Big Beautiful Bill (OBBB). Overall, for tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the amount in certain situations. The FAQs released in early August supersede earlier FAQs that were released on January 23rd, 2026. Both fact sheets, however, do address questions for both employers and employees about how overtime deductions work. Last month, the IRS issued a notice retroactively increasing its 2026 standard mileage rate for calculating mileage deductions.
Overview of the Latest Qualified Overtime Deductions FAQs
In general, the FAQs released on August 6 contain updated information about the deduction. It also provides resources for employees (including federal employees) to help them determine whether they received qualified overtime compensation under the Fair Labor Standards Act (FLSA). Finally, the FAQs include useful information on the differences in reporting requirements for tax years 2025 and 2026-2028.
The Fair Labor Standards Act
As the nation’s primary wage law and one of the major employment laws employers must follow, the FLSA establishes minimum wage and overtime protections for non-exempt part-time and full-time employees. However, under section 13(a)(1) of the FLSA, employees paid above the FLSA’s current salary basis are generally exempt from overtime provisions. To qualify for an overtime exemption, employees must have been paid on a salary basis at a rate of at least $684 per week. These exempt employees must also perform at least one duty of an executive, administrative, or professional employee. These duties include:
- company or departmental management;
- regularly directing work;
- hiring, firing, promoting, or suggesting such employment actions;
- exercising discretion and independent judgment in matters of significance;
- performing work that requires advanced knowledge in science or learning acquired through specialized academic training; and
- using originality, talent, imagination, or invention in a recognized artistic or creative field.
Examples of Questions from the Qualified Overtime Deductions FAQs
Chiefly, the recently released Fact Sheet 2026-13 contains 32 questions addressing the new qualified overtime compensation deductions. Examples of those questions include:
- What is the deduction for qualified overtime compensation?
- Who is an FLSA overtime-eligible employee?
- Is qualified overtime compensation required to be separately reported to individuals on information returns?
- Must employers reduce wages subject to income tax withholding to account for the qualified overtime compensation deduction?
- Must an employer separately include the amount of qualified overtime compensation on a Form W-2 for tax year 2026?
- If an employee received a Form W-2, Wage and Tax Statement with qualified overtime compensation reported in box 12, code TT, how does the employee report the amount of qualified overtime compensation on the employee’s individual income tax return for tax years 2026-2028?
- How does a federal employee know whether the employee is FLSA overtime-eligible?
- Are residents of a U.S. territory eligible to claim a deduction for qualified overtime compensation with the IRS?
Employer Takeaways
In conclusion, even though the OBBB was signed into law on July 4th, 2025, many federal agencies are still updating laws and regulations that were current as of that year. The seemingly glacial pace in finalizing such information has left many employers with questions that need answers. Accordingly, businesses can use these FAQs to ensure compliance with the updated IRS overtime deductions provisions. Additionally, employers should contact their business legal counsel or financial advisor if there are any further questions about qualified overtime compensation deductions.
Finally, to assist employers, WorkWise Compliance now offers a selection of monthly and annual compliance plans to help businesses address their legal obligations under workplace laws, including virtual consulting services on important labor law compliance topics. These services can help affected businesses address current and proposed regulations on proper labor practices.
