IRS Issues FAQs on New Overtime Deduction for Tax Professionals and Co-op Employers

The IRS and the Department of the Treasury have released guidance to help taxpayers and employers understand the new qualified overtime compensation deduction under the One, Big, Beautiful Bill (Pub. L. No. 119‑21). Individuals may deduct the portion of overtime pay that exceeds their regular rate of pay, generally the “half” portion of time‑and‑a‑half, for tax years 2025 through 2028.

Fact Sheet 2026‑01, summarized in IR‑2026‑10, provides detailed FAQs addressing eligibility, calculation of qualified overtime, and differences in reporting requirements for 2025 versus 2026–2028. The guidance also includes resources for employees — including federal workers — and clarifies employer reporting responsibilities, which may impact co-op payroll and tax compliance.

For more details, see One, Big, Beautiful Bill Provisions on IRS.gov.