IRS Updates FAQ on OBBB Overtime Deduction With New Guidance

The IRS added several new FAQs to the pre-existing FAQ on the OBBB overtime deduction. Pursuant to new FAQ, employers do not reduce wages subject to income tax withholding to account for the new qualified overtime compensation deduction. Employers cannot reduce withholding on a qualifying employee's wages unless the employee provides the employer an updated Form W-4 that accounts for the expected deduction. The 2026 Form W-4 has been updated to allow employees to account for the deduction (in step 4(b)). The FAQ also clarifies that qualified overtime compensation is determined for each workweek. The compensation is determined by taking the number of FLSA hours worked over 40 hours multiplied by one-half of the employee's regular rate of pay. For more information on the temporary deduction for overtime compensation, visit Tax Facts Online. Read More: Link to Q8522.2. Note: Q is updated.