Looking for a larger tax refund this year? Certain workers might qualify for a new deduction.

Tax Experts Highlight Important New Law for Filers

Tax professionals are encouraging taxpayers to familiarize themselves with a new law that could lead to larger refunds. The 2026 tax deadline is approaching quickly, set for April 15.

In Washington, as the April 15 filing date nears, something important is changing for many hourly workers: a new deferral that will allow a portion of overtime earnings to be deducted from taxable income.

This adjustment is part of the “One big, beautiful bill,” which introduces a new excess deduction for overtime pay, as well as long-standing exclusions for certain tip earnings and fresh deductions for seniors and other demographics, according to tax analysts.

With this law, individual taxpayers can deduct up to $12,500 annually in qualified overtime premiums, or $25,000 for couples filing together. This can significantly lower taxable income and overall tax obligations, contributing to a larger refund. It’s part of an ongoing effort to ease the federal tax load on work-related earnings, including overtime and tips, while also simplifying the tax process for those on salaries.

However, there’s a catch: not all overtime pay is deductible. Only the excess amount above standard pay qualifies. For instance, if someone earns $20 an hour, but receives $30 an hour while working overtime, they can only deduct $10 of that rate for tax purposes. The base wage remains taxable. This distinction is crucial for workers wanting to maximize their benefits without encountering issues with the IRS later.

Then there’s the issue of documentation. Many W-2 forms don’t clearly indicate overtime premiums separately, which might leave taxpayers uncertain about their eligible deductions. To mitigate this, the IRS has allowed what they call “transitional relief” to help filers determine their deductible overtime portion using year-end pay stubs or employer summaries. This approach aims to help workers claim deductions while giving companies some time to adjust their payroll info.

Mark Steber, a tax information officer at Jackson Hewitt, points out, “This isn’t automatic. It’s not standardized for future tax years. It’s wise to keep detailed records, consult with a tax professional, and ensure accuracy on your return.”

According to Steber, these rules are brand new, making it vital to get advice from a tax expert to ensure taxpayers receive what they are entitled to.

“It’s surprising how many are unaware this new deduction exists, including benefits for tips and senior citizens. There’s a lot of confusion because it’s complicated and unprecedented,” he added.

Nationally, tax refunds have increased about 10% compared to last year, largely due to additional deductions being introduced. Despite ongoing staffing challenges at the IRS, Steber noted that there haven’t been significant delays in processing returns thus far this season.

With the April 15 deadline looming, tax experts emphasize a clear message for those relying on overtime deductions: gather your payroll records immediately, remember that only the excess portion is deductible, and don’t hesitate to seek assistance to claim this new benefit correctly.