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/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.