Workers who receive qualified overtime pay in 2025 are entitled to an up to $12,500/individual tax deduction if they earn less than $150,000. That means employers have to track and report qualified overtime pay. New guidance on how to do that is expected, but current guidance is limited.

The Internal Revenue Service has already announced that there will be no changes to Form W-2 for 2025. The IRS says that while it intends to release transitional guidance for reporting overtime in 2025, for now the agency will allow employers “to use any reasonable method” for 2025. That could mean including the overtime pay amount in Box 14, using a separate statement, or anything else that the IRS would deem to be reasonable.

For 2026 through 2028 (the last year this deduction will be available, unless Congress extends it), the IRS’ draft of Form W-2 includes a new Code TT in Box 12 that specifically will be used to report qualified overtime pay. Again, the IRS says it expects to issue more detailed guidance on this issue as soon as possible.

Withholding on all wages—including qualified overtime—is still required for income tax, and for Social Security and Medicare payroll taxes.

Prospects: Guidance on all the tax rules governing the new overtime pay deduction is a top priority for the IRS and Treasury. But there is as yet is no projected date by which this needed guidance will be released.

NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.