The One Big Beautiful Bill Act (OBBBA) introduces changes and new requirements for reporting overtime pay in 2026. The changes are required to enable employees to claim certain overtime deductions on their personal tax return. The new tax deduction applies only to the ‘Qualified Overtime Compensation’ portion of overtime pay. The Qualified Overtime Compensation is the premium portion of overtime pay, or that extra “half” portion of “time-and-a-half” compensation. For example, if an employee earns $20/hour and works overtime, the overtime pay is $30/hour. Of the $30/hour, in this example the $10/hour is the Qualified Overtime Compensation that may be deductible under the new rule. Not all overtime will qualify for the deduction by employees.  Only overtime pay required by the Federal law Fair Labor Standards Act (FLSA) is eligible. Overtime Pay required by California regulations will not be included in the tax deduction. This means the California

The One Big Beautiful Bill Act (OBBBA) requires changes to tax reporting on overtime and tips. However, the IRS announced that, as part of the phased implementation of the OBBBA, there will be no changes to tax returns or federal withholding tables for Tax Year 2025. The IRS will not be making adjustments for 2025 related to the OBBBA, and forms will remain the same. Specifically, Forms W-2, existing Forms 1099, Form 941, and other payroll forms will not change for 2025. Federal income tax withholding tables will continue as they are. Employers should continue using current reporting and withholding procedures until 2026. The IRS explained that delaying changes until 2026 is meant to reduce confusion during the upcoming tax filing season and give businesses and tax professionals more time to prepare for implementation. “These decisions are intended to avoid disruptions during the tax filing season and to give the IRS, business, and tax professionals enough time to implement the c