Millions Claimed New Overtime Tax Break, But Some May Have Done It Wrong

Experts warn that improper claims for the 'no tax on overtime' deduction could lead to audits and adjustments.

Apr. 17, 2026 at 9:18pm

Got story updates? Submit your updates here. ›

An extreme close-up of heavy, industrial banking machinery and objects like gears, levers, and pulleys, conveying the complex financial infrastructure and institutional oversight behind the new overtime tax deduction.As the IRS cracks down on improper overtime tax deduction claims, this industrial-style macro image symbolizes the complex financial mechanics and institutional oversight behind the new tax break.Riverwoods Today

More than 25 million tax filers have already claimed the new 'no tax on overtime' deduction on their 2025 federal income tax returns, with the average deduction being $3,100. However, experts warn that some taxpayers may have improperly claimed the deduction, either due to misunderstanding the complex eligibility requirements or because of misleading information from unscrupulous tax preparers. The IRS has cautioned about potential scams related to the new overtime deduction.

Why it matters

The surge in overtime deductions claimed has exceeded early forecasts, raising concerns that some taxpayers may have gotten it wrong. Improper claims could lead to audits, adjustments, and lost revenue for the government. The complexity of the new tax break and lack of employer reporting requirements in 2025 have contributed to the confusion.

The details

The 'no tax on overtime' deduction allows workers to deduct the 'half' portion of their overtime pay at time-and-a-half. To claim the maximum $3,100 deduction, a worker would have had to earn $9,300 in qualified overtime pay in 2025. However, the deduction phases out for higher-income taxpayers. Experts say some workers may have wrongly claimed the deduction even if their overtime did not qualify under the Fair Labor Standards Act. The IRS has warned about scams related to the new deduction, with unscrupulous tax preparers inflating claims.

  • In March 2026, the IRS warned taxpayers to guard against dishonest tax preparers advertising help for claiming the overtime deduction.
  • In April 2026, the Treasury Department reported that more than 25 million filers had already claimed the new 'no tax on overtime' deduction.

The players

Garrett Watson

Director of policy analysis for the Tax Foundation.

Andrew Lautz

Director of tax policy for the Bipartisan Policy Center.

Brandon DeBot

Policy director at The Tax Law Center at NYU Law.

Frank Bisignano

IRS CEO.

Scott Bessent

Treasury Secretary.

Got photos? Submit your photos here. ›

What they’re saying

“Whether an individual is covered by and not exempt under the FLSA is a fact-specific determination that depends on the individual's occupation, work activities, and/or earnings.”

— IRS

“To the extent this is the case, I expect many of those claims are accidental. In other words, I'd be surprised if millions are intentionally claiming when they know they're not eligible.”

— Andrew Lautz, Director of tax policy for the Bipartisan Policy Center

“I'd be less surprised if plenty of workers see 'no tax on overtime' and assume that their overtime is eligible, even if the statute and regulations clarify that they are not eligible.”

— Andrew Lautz, Director of tax policy for the Bipartisan Policy Center

“The deductions are only for income taxes, not payroll taxes. They're capped. There are eligibility requirements.”

— Brandon DeBot, Policy director at The Tax Law Center at NYU Law

“The so-called 'no tax on' provisions raise the risks of scams overall.”

— Brandon DeBot, Policy director at The Tax Law Center at NYU Law

What’s next

Beginning in 2026, employers will be required to separately report qualified overtime compensation on Form W-2, which will make it easier for the IRS to enforce the tax rules and for taxpayers to know exactly how much overtime income they may be able to deduct.

The takeaway

The surge in claims for the new 'no tax on overtime' deduction has exceeded early forecasts, raising concerns that some taxpayers may have improperly claimed the deduction due to misunderstanding the complex eligibility requirements or misleading information from unscrupulous tax preparers. This could lead to audits, adjustments, and lost revenue for the government. Going forward, clearer reporting requirements for employers should help reduce confusion and improper claims.