IRS Issues FAQs On Qualified Overtime Compensation Deduction under OBBBA

The IRS has issued FS-2026-1, a Fact Sheet, addressing frequently asked questions (FAQs) about the new deduction for qualified overtime compensation under the One Big Beautiful Bill Act (OBBBA). The Fact Sheet was announced in IR-2026-10 on January 23, 2026.

The FAQs feature eight (8) questions in total, and refer to the guidance provided in Notice 2025-69 and Notice 2025-62.

Topics addressed include how individuals may determine their eligibility for the deduction; what constitutes qualified overtime compensation including deduction amounts and limits, and reporting and calculation rules for tax year 2025 and for 2026-2028.

Federal employees may generally determine their FLSA overtime eligibility by referring to their Standard Form 50 which contains their FLSA-Category; “E” for exempt (FLSA-ineligible) or “N” for non-exempt (FLSA overtime-eligible). For non-federal employees, their eligibility is determined by their occupation, work activities and/or earnings. Non-federal employees are directed to the Department of Labor website for more information on coverage and exemption under the FLSA, with resources also linked in the FAQ.

Relative to reporting, the questions reiterate that for tax year 2025, employers and other payors are not required to separately report qualified overtime compensation on Forms W-2, 1099-NEC, and 1099-MISC. Some employers and other payers may choose to separately report the amount of qualified overtime compensation to employees using box 14 of Form W-2 or to employees or payees through an online portal or on a separate statement.

Individuals are advised to consult the methods in Notice 2025-69 in calculating the amount of qualified overtime compensation if they do not receive a Form W-2 or other statement from their employer or other payer for tax year 2025 that separately reports the amount of qualified overtime compensation. Additionally, individuals may also consult the Instructions to Schedule 1-A that are included in the Instructions for Form 1040 PDF to calculate the amount of qualified overtime compensation.

For tax years 2026-2028, however, employers and other payers are required to separately report qualified overtime compensation. Forms W-2, 1099-NEC, and 1099-MISC will be updated to facilitate this requirement.

On January 9, 2026, the IRS published the finalized 2026 Form W-2, which includes three new Box 12 codes to facilitate reporting for the new tax provisions provided for under the OBBBA, including one code for the qualified overtime compensation deduction. On January 30, 2026, the IRS published the finalized the 2026 Generalized Instructions for Forms W-2 and W-3.