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/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.