On August 6, 2026, the Internal Revenue Service (IRS) released a fact sheet with updated guidance in the form of frequently asked questions (FAQs) on federal taxation for tips and overtime pay as provided under 2025’s comprehensive omnibus spending bill.

Quick Hits

• The IRS unveiled a new set of detailed FAQs on August 6, 2026, that supersede FAQs that were posted on January 23, 2026, regarding taxation of tips and overtime pay under 2025’s omnibus spending bill.
• The new FAQs provide information concerning the definition of qualified overtime, eligibility for the deduction, tax withholding obligations, and reporting and correcting qualified overtime on year-end tax forms.
• The “no tax on tips and overtime” provisions are set to expire on December 31, 2028.

In July 2025, President Donald Trump signed an omnibus spending bill that specified no taxes on tips and overtime pay through December 31, 2028. These provisions are available whether the worker itemizes or takes the standard deduction.

Qualified Overtime Deduction

The FAQs clarify that overtime compensation not required by the Fair Labor Standards Act (FLSA) is not eligible for the tax deduction. To deduct qualified overtime, an employee must be covered by the FLSA and must not qualify for an overtime exemption, such as the one for executives, administrators, and professionals.

Business owners who own at least 20 percent of their business and actively participate in management generally are not eligible to deduct...

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