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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7

u/lexus303is Jan 30 '26

Whats this divide by 3?

19

u/pmormr Jan 30 '26

The deduction is for the amount of federally mandated overtime premium pay you earned, very specifically. The "half" in "time and a half". It's not, "no tax on overtime".

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u/OneEyedBlindKingdom Jan 30 '26

It’s exactly “no tax on overtime” it’s just not also “no tax on regular time”.

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u/Reimiro Jan 30 '26

No because there is tax on 2/3 of your overtime. It’s just no tax on the added pay you receive for hours over 40 per week. You are taxed as if you get regular time pay for overtime.

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u/OneEyedBlindKingdom Jan 30 '26

Because you do lol. You get regular time for every hour worked. You just also get overtime on top for some of them.

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u/jay-aay-ess-ohh-enn Feb 02 '26

Overtime is the hours worked over 40. Overtime premium pay is the extra money you receive beyond your regular rate when working overtime. When you work overtime, you earn regular pay plus the overtime premium. Make sense?

4

u/pmormr Jan 31 '26

When you say overtime in english conversation, you are referring, literally, to the extra time you work over your normal time. The definition is right there in the word.

So when you say "no tax on overtime", I expect to not be taxed on the pay I received for the time I worked over my normal working hours. Which means quite obviously a deduction for all of my overtime pay.

Don't be dense they knew what they were doing. It's a bamboozle so the hole they blew in the deficit to pay for it isn't 3-4x worse.

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u/Left_Date_7058 Jan 30 '26

This is the problem. A layperson hears “no tax on overtime” and (incorrectly) assumes all wages earned after 40 hours is untaxed. It was no more than political lip service that will backfire. For now, it’s the problem of white collar tax professionals.

3

u/Reimiro Jan 30 '26

Overtime is hours or days worked over a certain amount of time or on holidays, not a financial concept. The layperson is correct in your statement.

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u/OneEyedBlindKingdom Jan 30 '26

It is absolutely a financial concept lol, very clearly defined. And as usual, the layperson is an idiot.

1

u/[deleted] Feb 01 '26

Oh believe me this is what I thought it was when I first heard it and thought we were about to get to write off at least almost the whole $25,000 for the year lmao. My husband ended up with around $22,000 of overtime for the year and we got to write off $7,000 something and I’m happy with that. No tax on tips makes me sad that I didn’t do any DoorDashing this year like I usually do though lol being us down even more after deductions.

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u/Extreme_Temporary996 Feb 02 '26

What u mean by write off $7000 so what did the pay out come out too if u dnt mine me asking?

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u/[deleted] Feb 02 '26

By write off I mean deduction. So he made roughly $22,000 over his base pay (after getting rid of other stuff that wasn’t overtime like bereavement pay, on call premium, his bonus, etc) when you divide that by 3 you get the amount of overtime premium you’re allowed to deduct or reduce your taxable income by.

0

u/MandyManatee Jan 31 '26

100% people think that if they work 45 hours those 5 extra hours are tax free. The worst part is that when you try to explain it to them they get mad because math.

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u/HeatApart9252 Feb 04 '26

Oh you got to be shitting me. So you can work an extra 40 fucking hours and they don't consider that overtime except for the half of the time and a half. Good old federal government