FAQs & Fact Sheet: Qualified Overtime Deduction
The IRS recently posted an updated FAQ and Fact Sheet for the Qualified Overtime Deduction made effective by the One Big Beautiful Bill. The updates are as follows:
- Updates throughout, including adding an index, renumbering certain FAQs, and making clarifying revisions to most questions.
- Deletes information that was applicable solely to the 2025 taxable year.
- Provides clarification on the limits and timing of the qualified overtime compensation deduction.
- Provides additional information on coverage and exemptions under the FLSA.
- Provides detailed information on Form W-2, Form 1099-MISC, and Form 1099-NEC requirements applicable to employers and payors of qualified overtime compensation.
- Adds information on federal income tax withholding procedures related to qualified overtime compensation.
- Adds information on the requirement that qualified overtime compensation must be separately reported on Form W-2 to claim the deduction.
- Provides more detailed information on issues applicable to federal employees.
For its first year of use, the rules and requirements for qualified overtime and qualified tips had some caveats and special exceptions, to help give employers and payroll processors a chance to get used to the new program.
Employers and payroll filers should familiarize themselves with the updated FAQs to stay compliant and to ensure employees receive the most favorable tax treatment on their wages possible.
Access the IRS FAQ and Fact Sheet
If you have any questions about qualified overtime deductions or other compensation and benefits tax matters, contact Connor Smart.