No tax on overtime: your 2026 W-2 and how to claim it
Your 2026 Form W-2, due by February 1, 2027, shows qualified overtime in box 12. Deduct up to $12,500 ($25,000 joint) on Schedule 1-A.
You claim the overtime deduction on Schedule 1-A of your 2026 federal tax return. Use the amount your employer reports in box 12 of your 2026 Form W-2. Only the overtime premium federal law requires counts, usually the "half" of time-and-a-half. The deduction is capped at $12,500 ($25,000 on a joint return). It shrinks once your modified adjusted gross income passes $150,000 ($300,000 joint).
- Only the premium federal law requires counts: the "half" of time-and-a-half, not your whole overtime check.
- For 2026, you can deduct only what your employer reports in box 12 of your Form W-2. Ask for a corrected form if it is wrong.
- The deduction does not reduce Social Security or Medicare tax on your overtime.
What counts as qualified overtime
Qualified overtime is the part of your overtime pay the Fair Labor Standards Act (FLSA) requires above your regular rate. For most workers that is half the regular rate for each hour over 40 in a workweek. The deduction runs for tax years 2025 through 2028.[1][2]
Some workers' overtime falls under other FLSA methods, such as some hospital and residential care staff and public fire and police employees. For them, the overtime premium paid under that method counts.[1]
- The FLSA must cover you, and you must not be exempt from its overtime rule. Exempt employees, such as many executive, administrative and professional staff, get no qualified overtime.
- Only the part your employer must pay under the FLSA counts. Extra pay above that, such as the extra half of your regular rate in double time, does not. In the example below, that is $10 of the $20 premium. Daily overtime required only by state law or a union contract counts only if your employer credits it toward that week's FLSA overtime.
- Your regular rate is your total pay for the week, including commissions and piece-rate pay, divided by your hours worked. The FLSA leaves out a few kinds of pay, but the rate can still be higher than your hourly wage.
In an Internal Revenue Service (IRS) example, a worker paid $20 an hour works 50 hours. The employer pays double time for the 10 extra hours: $400 of overtime pay. The FLSA requires only $10 an hour above the regular rate, so qualified overtime is $100.[1]
The deduction lowers federal income tax only. It does not reduce Social Security or Medicare tax on your overtime, and income tax is generally still withheld from it.[1][3]
Where qualified overtime shows on your 2026 Form W-2
For 2026, employers report qualified overtime in box 12 of Form W-2 with the code for total qualified overtime compensation (TT). Your employer must give you your 2026 Form W-2 by February 1, 2027.[3][1]
Unlike 2025, when Forms W-2 had no separate overtime amount and workers worked out their own figure, this amount now decides the deduction. From 2026 on, you can deduct only what appears in box 12 with code TT, up to what you were actually paid.[4][1]
If code TT is missing or too low, ask your employer for a Form W-2c. A substitute Form 4852 does not count for this deduction. If your employer will not correct it, you can deduct only the amount reported.[1]
Check the 2027 W-2 and 1099 deadlines if your form is late. A separate post explains tax withholding on bonuses.
If a business pays you as a contractor on a Form 1099, overtime rarely applies. It counts only if you are legally its employee under the FLSA: see how to tell an independent contractor from an employee. If a Form 1099 shows overtime, it goes on line 18 of Part III of the schedule described below.[1][5]
How to claim no tax on overtime on your 2026 return
Before you start, check 3 things:[1]
- A Social Security number (SSN) valid for work, issued before your return's due date (including extensions).
- A joint return, if you are married.
- Every 2026 Form W-2 that shows code TT.
You can claim the deduction whether you itemize or take the standard deduction.[1][2]
The steps follow Part III of the draft 2026 Schedule 1-A ("Additional Deductions"), which the IRS posted marked "do not file". Line numbers can change in the final form.[5]
- List each employer and its code TT amount in Part III.
- Add the amounts.
- Enter the smaller of that total or $12,500 ($25,000 if married filing jointly).
- Compare your modified adjusted gross income (MAGI) with $150,000 ($300,000 joint). MAGI is your adjusted gross income plus certain excluded foreign and territory income.
- If your MAGI is higher, subtract $150,000 ($300,000 joint) from it.
- Divide the result by $1,000 and round down to a whole number.
- Multiply that number by $100 to get your reduction.
- Subtract that reduction from step 3. The result, if above zero, is your deduction.
- Carry it to the schedule's total, which goes on your Form 1040.
The result is a deduction that lowers your taxable income, not a credit that cuts your tax dollar for dollar. If your MAGI is high enough, the deduction falls to zero.[5]
Tips have a separate deduction of up to $25,000, in Part II of the same schedule.[2][5]
How to have less tax withheld from overtime during the year
Your employer withholds income tax on overtime as usual. To have less withheld, give it a new 2026 Form W-4 that counts your expected overtime deduction in step 4(b). The IRS Tax Withholding Estimator also accounts for it.[1]
Sources
Scope: Covers the federal income tax deduction for qualified overtime for tax year 2026, as of October 23, 2026, from IRS guidance and the draft 2026 Schedule 1-A. Does not cover state income tax, the tips deduction in detail, or federal employees' compensatory time. For your return, contact the IRS or a tax professional.
- Updates to questions and answers about the new deduction for qualified overtime compensation (FS-2026-13)Internal Revenue Service · Accessed October 23, 2026
- Working Families Tax Cuts: Individuals and workersInternal Revenue Service · Accessed October 23, 2026
- General Instructions for Forms W-2 and W-3 (2026)Internal Revenue Service · Accessed October 23, 2026
- Notice 2025-69: Guidance for individual taxpayers who received qualified tips or qualified overtime compensation in 2025Internal Revenue Service · Accessed October 23, 2026
- Schedule 1-A (Form 1040) 2026, Additional Deductions (draft, do not file)Internal Revenue Service · Accessed October 23, 2026
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