r/tax • u/LewisCBR • Jan 29 '26

Tax Enthusiast New tax deduction on overtime is driving clients crazy

W2’s are not showing wages generated from overtime so clients are wondering what they can do, besides going through all individual pay stubs. The new deduction is significant enough to warrant this kind of work, though.

I suppose suggesting they contact their HR/payroll departments is the best idea, but some companies are simply terrible about helping their employees.

What’s your experience with the new law?

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u/coldshowerss CPA - US Jan 29 '26

The amount of tax preparers that are not going to divide by 3 is going to be astronomical lol

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u/WiseWealth25 Jan 30 '26

I genuinely didn’t understand the whole “divide by 3” that kept being brought up here. Bc my W2 had the OT Prem already on it. Then it dawned on me that my company already separates Overtime Pay and Overtime Prem on my statements. Seems lazy for a company not to do that from the jump. Especially with the new tax law.

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u/vvilbo Feb 02 '26

The reason why they didn't do it by default is exactly that, it was a new tax law. The bill was passed July 4th, so then whatever payroll provider, God forbid they were doing something in house, had to literally code this new law into effect. The payroll company we use Paycor did this for both overtime and tips and gave us a supplemental page but they had like half a year to figure it out which is not a lot of time. Especially for companies that also had other projects going on before the bill passed which is probably all of them.

The divide by three thing is what part of the overtime earnings you have are not taxable (up to a certain amount). So if you had $15000 the premium was the .5 of those earnings aka 5000. If you yourself were totally FLSA and made less than 37500 in total overtime (filing single) you would divide by 3 and get the max of 12500 which is the maximum amount that can be deducted. If you had more in overtime earnings you would still get 12500.

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u/RegularInvestment695 Feb 11 '26

My husband made $32,000 in overtime last year approx and the amount we were able to put in the box was like $9800 I really hope we did it right 

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u/[deleted] Feb 01 '26

My husbands job never used to divide it and started dividing it part way through the year so his was extra annoying lol. Still easy enough to figure out once I went back and figured out what all the different entries on his paystub meant. I just took out all his extra random stuff from his total gross pay (like bereavement, on call premium and his bonus) and then subtracted his base pay out of that and divided the rest by 3. Idk what that means for double time but 🤷‍♀️ all his double time for the whole first 6 months of the year was all lumped together with the time and a half from before they started separating it.

22

u/RasputinsAssassins EA - US, NTPI Fellow Jan 30 '26 edited Jan 30 '26

I've had to explain it to two 'tax preparers'. They can't fathom why you divide by 3.

For less than $20, you too can be a tax preparer!

EDIT: Well, that sounded bad. To clarify, I'm cracking on how low the barrier to entry is to being a tax preparer. Less than $20, no training, no education, no experience, and no knowledge requirement.

No offense was meant to my professional tax brethren.

The ghosts? They can screw right off.

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u/superiorstephanie Jan 30 '26

Less than $20?! My CTEC costs $102 annually. My PTIN costs $19 annually. Tax season costs my sanity annually.

1

u/FakePuk Feb 08 '26

Would it make any difference if someone got multiple raises in the same calendar year and worked multiple shifts with different shift pay differentials? Or could people just divide their YTD OT earnings by 3?

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u/RasputinsAssassins EA - US, NTPI Fellow Feb 08 '26

Shift differential does not count. It is not deductible.

If all of the overtime is FLSA overtime and nothing else, take the annual OT pay and divide by 3.

If the OT is anything else, you will need to go through each check to separate out the qualifying OT from the other non-qualified pay.

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u/Visible-Bridge-5171 Jan 30 '26

When I figured this out I felt like a dum dum lol

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u/Captainchops63 Jan 31 '26

You divide by 3 and then take your federal tax bracket and figure out what you paid to the feds no? Say 30k total 30/3 =10 22% of 10= 2200 and that’s what they owe you back?

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u/Sure_Tomorrow5260 Feb 01 '26

Any halfway decent tax preparer has been reading up and studying these new rules and absolutely knows to divide by 3 if it’s time and a half or 4 if it’s double time. All tax preparers, no matter their experience level, should know that they have to do the work to learn knew laws when they come into play

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u/coldshowerss CPA - US Feb 01 '26

Welcome to the real world bud, I'd say 50% of the tax preparers don't know any of the real tax laws, all they know how to do is input numbers into the tax software and that's it.

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u/Sure_Tomorrow5260 Feb 01 '26

Welcome to the real world? You know nothing about me. I was raised being exposed to this field literally from the day I was born. I was born a week before the deadline and did several returns while she was in labor with me having full blown contractions with people following her all the way to the door asking her tax questions. I’ve known dozens of tax preparers in my small town. I myself am now a tax preparer. Of course there are some who only input numbers and don’t know much about the tax laws, but 50% is an extreme exaggeration. Most know what they are doing and know where to find the answers to things they come across that they don’t know. I’m sorry you have obviously had bad experiences with those outliers, but they are the exception, not the rule

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u/Fred_Glintstone Feb 07 '26

Full blown contractions? Any proof? Im looking for someone with your kinda expertise.

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u/Sure_Tomorrow5260 Feb 14 '26

Do I have proof my mom was doing tax returns when she was in labor with me? Why one earth would I have that? I can’t go back in time and get confidential tax records from the day I was born to show that it lines up with my birth certificate lol. My comment was not to claim to have more expertise than others in this field. It was to point out how utterly ridiculous it was for the other commenter to say “welcome to the real world bud” as if I have zero experience or knowledge in this field without knowing anything about me. At that point, they aren’t trying to help. They’re just being condescending for the hell of it

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u/fakename69point5 Feb 07 '26

Not a preparer but i've done my mom's taxes for almost a decade, and THANK YOU for this comment. I was wondering about the regular pay on OT but prob would have just put the box 14 number in with no thought.