WASHINGTON, D.C. — The U.S. Department of the Treasury and the Internal Revenue Service on Friday rolled out new guidance on a tax deduction for qualified overtime pay while simultaneously launching a nationwide push to boost participation in the Earned Income Tax Credit, moves aimed at putting more money back into the pockets of working Americans during the 2026 filing season.
In Fact Sheet 2026-01, Treasury and the IRS detailed frequently asked questions tied to a new deduction created under the One, Big, Beautiful Bill. For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the portion of overtime pay that exceeds their regular rate — typically the “half” portion of time-and-a-half pay — as long as it is reported on a Form W-2 or Form 1099.
The guidance explains eligibility under the Fair Labor Standards Act, outlines reporting differences between tax year 2025 and tax years 2026 through 2028, and provides resources to help employees, including federal workers, determine whether they received qualifying overtime compensation.
Treasury and the IRS previously issued Notice 2025-62, granting penalty relief to employers and other payers for tax year 2025 as new overtime reporting requirements take effect, and Notice 2025-69, clarifying eligibility for workers claiming the deduction for the 2025 tax year. Additional details are available on IRS.gov under One, Big, Beautiful Bill provisions.
Also on Friday, the IRS and partners across the country kicked off the annual Earned Income Tax Credit Awareness Day campaign, a long-running outreach effort designed to ensure eligible workers and families claim one of the federal government’s most significant anti-poverty tax benefits.
The Earned Income Tax Credit provided roughly $68.5 billion to 23.5 million workers and families nationwide, with the average credit totaling $2,916 for tax year 2024, according to IRS data. Despite its impact, the agency estimates that about one in five eligible taxpayers still fail to claim the credit.
IRS Chief Executive Officer Frank J. Bisignano said the credit plays a critical role in supporting working families and urged eligible taxpayers to claim the full amount allowed under the Internal Revenue Code.
As part of the outreach campaign, community organizations, employers, schools, and state and local governments are participating in events nationwide to raise awareness of the credit and other child-related tax benefits. The IRS encourages workers to check eligibility using the EITC Assistant or review basic rules through its child-related tax benefits comparison tools.
To receive the EITC, workers must file a tax return and claim the credit. The IRS again emphasized that filing electronically and choosing direct deposit remains the fastest way to receive a refund.
The agency said most early Earned Income Tax Credit or Additional Child Tax Credit refunds are expected to be available in bank accounts or on debit cards by March 2, 2026, for taxpayers who choose direct deposit and whose returns have no other issues. The IRS’s “Where’s My Refund?” tool at https://www.irs.gov/wheres-my-refund is expected to be updated with projected deposit dates for most early EITC and ACTC filers by February 21, 2026.
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