The IRS has released additional guidance clarifying how taxpayers can claim the new deduction for qualified overtime compensation enacted under the One Big Beautiful Bill Act.

Forbes reports that the guidance, issued in the form of FAQs, outlines eligibility rules, reporting mechanics, and limits for what is a temporary deduction available from 2025 through 2028.

According to the IRS, the deduction applies only to overtime pay required under Section 7 of the Fair Labor Standards Act (FLSA) that exceeds an employee’s regular rate of pay. In practice, this means that only the additional “half” portion of time-and-a-half compensation qualifies, while any overtime paid above that federally required premium does not.

Workers who are not eligible for FLSA overtime, including many salaried professionals and exempt employees, cannot claim the deduction even if they routinely work long hours.

The deduction is capped at $12,500 per return, or $25,000 for joint filers, and begins to phase out for single taxpayers with modified adjusted gross income above $150,000, or $300,000 for joint filers.

Overtime pay remains fully taxable income and is claimed as a deduction rather than excluded from wages.

For 2025, employers are not required to separately report qualified overtime amounts, meaning taxpayers may need to rely on pay stubs or internal records.

Beginning in 2026, updated reporting on Forms W-2 and 1099 is expected to streamline the process.