47 verifiable claims checked across the OBBB / IRC § 225 statutory framework, IRS guidance documents (Notice 2025-69, Notice 2025-62, FS-2026-01, finalized 2026 Form W-2, Schedule 1-A), state conformity posture (CA, NY, IL, CO confirmed decouplers; MA evaluating; CT, HI signaling), the parallel IRC § 224 tips deduction, and operational reporting requirements (Box 12 code TT, IRC § 6051(a)(19), § 6041(d)(4), § 6721 penalties). All claims ship ✓ Verified (one ⚠ Partial for Massachusetts evaluation pending finalization). The companion no-tax-on-overtime-calculator's research notes cross-verifies the § 225(c) "FLSA section 7 only" restriction and the 0.5× premium math.
18 claims
OBBB / P.L. 119-21 was signed into law July 4, 2025
Section 70202(a) of P.L. 119-21 added new IRC § 225 (qualified overtime compensation)
Cornell LII canonical text + IRS FS-2026-01 Q&A both reference Section 70202(a) of OBBBA adding new IRC § 225.
§ 225(c) defines "qualified overtime compensation" as overtime required under FLSA § 7, in excess of the regular rate
Article's block-quoted statutory text matches Cornell LII verbatim. IRS Q&A confirms FLSA § 7 (29 U.S.C. § 207) is the operative reference.
§ 225(a) grants the deduction for qualified overtime compensation received in the taxable year
§ 225(b) caps the deduction at $12,500 ($25,000 joint) and phases out $100 per $1,000 above $150,000 MAGI ($300,000 joint)
§ 225(g) sunsets the deduction for tax years beginning after December 31, 2028
§ 225(d) requires the taxpayer to include their SSN on the return
Married taxpayers must file jointly to claim § 225 (MFS disqualifies)
The deduction is below-the-line, claimed on new Schedule 1-A to Form 1040 (line 13b); reduces taxable income but not AGI; available regardless of standard deduction vs itemize
Form 1040 mechanics: Line 11b = AGI; Line 12e = standard / itemized deduction; Line 13b = "Additional deductions from Schedule 1-A, line 38"; Line 14 = sum of 12e + 13a + 13b; Line 15 = AGI minus line 14 = taxable income. § 225 enters at line 13b, after AGI is computed — it is below-the-line. Available to both standard-deduction and itemizing filers (which is a separate property from above/below-line and is sometimes conflated in field commentary; the IRS's "Schedule 1-A: what to know" page is explicit).
The deduction applies only to FLSA-required overtime; state-only OT, double-time, holiday premium, CBA premiums above the FLSA floor, and exempt-employee "overtime" do NOT qualify
Both sources confirm "required under section 7 of FLSA" excludes state-daily OT (CA 8h, CO 12h, etc.), CBA premiums, holiday premiums, exempt-employee policy "overtime," and double-time.
FLSA § 13 exempts executive, administrative, professional, outside-sales, and certain computer employees from overtime
IRS finalized the 2026 Form W-2 on January 12, 2026 with new Box 12 code TT ("Total amount of qualified overtime compensation")
PayrollOrg dates the IRS release to January 12, 2026; HRMorning cross-confirms the Box 12 code TT designation and that mandatory reporting begins tax year 2026 (W-2s issued January 2027).
Box 12 code TT is the FLSA 0.5x premium only (not the full 1.5x overtime check)
26 U.S.C. § 6051(a)(19) is the statutory basis for the W-2 reporting requirement
OBBBA revised § 6041, 6041A, 6050W, and 6051 to require separate reporting of qualified tips and qualified overtime. Notice 2025-62 explicitly references "Code Sections 6051(a)(19) and 6041(d)(4)" as the operative provisions.
26 U.S.C. § 6041(d)(4) carries the parallel 1099 reporting requirement for misclassification edge cases
OBBB Section 70201 created IRC § 224 (qualified tips deduction), capped at $25,000, same MAGI phase-out, sunsets December 31, 2028
§ 224 tips deduction has its own W-2 box — Box 12 code TP for qualifying tips (plus code TS for tips from SSTBs that don't qualify)
2026 Form W-2 finalization added Box 12 codes TP (qualifying tips), TS (SSTB tips that don't qualify), and TT (qualified overtime). The article cites code TP for tips that qualify and code TS for tips from specified service trades or businesses that don't qualify.
Colorado decoupled from OBBBA § 225 via HB 25-1296 — overtime add-back effective Jan 1, 2026; DR 0104 adds "Excess federal deduction for overtime pay" line
Colorado HB 25-1296 requires individuals to add back any overtime compensation deducted on IRS Schedule 1-A when calculating Colorado taxable income. Tier-1 source: Colorado Department of Revenue's January 2026 Tax Policy Updates page.
1 claim
Full phase-out at $275,000 (single) / $550,000 (joint)
Derived from the statutory phase-out: $12,500 / ($100 per $1,000) = $125,000 of phase-out range above the $150,000 / $300,000 floor. $150k + $125k = $275k single; $300k + $250k = $550k joint. Math follows directly from the § 225(b) text.
4 claims
2025 W-2 / 1099-NEC / 1099-MISC / 1099-K forms unchanged for OBBB (per IRS Notice 2025-69)
Notice 2025-69 published November 21, 2025. Confirms 2025 forms unchanged; employees calculate the deduction themselves; employers may voluntarily report in Box 14 of the 2025 W-2.
Notice 2025-69 suggests "FLSA OT Prem" as the optional Box 14 label for voluntary 2025 reporting
IRS Notice 2025-62 provides penalty relief for 2025 information-reporting non-disclosure
2025 forms 1099-NEC, 1099-MISC, 1099-K unchanged under Notice 2025-69
1 claim
IRC § 6721 penalty is $310 per incorrect information return, capped at $3,783,000 per year per filer (2026 figures)
2026 inflation-adjusted figures per IRS Internal Revenue Manual section 20.1.7 Information Return Penalties. Article correctly rounds $3,783,000 to "$3.78M."
1 claim
JCT scored OBBB no-tax-on-overtime + no-tax-on-tips package at ~$121 billion over the 10-year budget window (FY2025-2034) — ~$89B overtime + ~$32B tips
JCT scoring window is 10 years (FY2025–2034) even though the deduction sunsets after 2028; the figure captures lagged revenue impact through the standard CBO/JCT budget window. Component breakdown: ~$89B for overtime, ~$32B for tips. Article cites the combined ~$121B / 10-year figure with both component amounts.
1 claim
~17 million filers projected to benefit from the § 225 overtime deduction with average tax change ~$1,400 (Tax Policy Center)
Reputable scorings of beneficiary headcount land in the 15–20M range — Tax Policy Center estimates ~17M filers; House Ways and Means cited ~9% of households (comparable order of magnitude). The "$1,400 average" figure is TPC's average across all 17M beneficiaries, not a cap-bound maximum. Article attributes both figures to TPC.
1 claim
California ~18 million-worker non-farm workforce
CA EDD reports total non-farm employment of 18,023,200 (May 2025) and 18,779,800 (January 2026). Article cites ~18M with EDD attribution.
1 claim
California decoupling protects ~$3.2 billion / year in state tax revenue
Thomson Reuters Checkpoint reports California Franchise Tax Board projection of $3.2B annual revenue impact from the federal § 225 deduction decoupling.
1 claim
Illinois decoupled from OBBBA § 225 — taxpayers must add back federal QOC; Illinois OMB projects ~$267M in revenue protection for 2026
Illinois requires an add-back for any OBBBA tip or overtime deduction; Illinois OMB cited approximately $267 million revenue protection as the rationale. Tier-2 sources (BDO publication + Thomson Reuters) cite the Illinois action; the primary Illinois DOR bulletin should be cross-referenced once published.
1 claim
Massachusetts is evaluating non-conformity; MA Comptroller projects ~$664M in state revenue cost if federal deduction flows through
MA Comptroller's announcement names the ~$664M projected revenue impact as the driver. Connecticut and Hawaii are mentioned in derivative industry reporting (Thomson Reuters, ITEP) as signaling non-conformity but lack primary state DOR guidance as of May 2026; the article notes them with the "signaling" caveat. Both should be re-verified when state DOR guidance posts.
1 claim
Worked example math — 100 FLSA OT hours × $12.50 premium = $1,250 Box 12 code TT amount
derived from § 225(c) definition (Cornell LII) + FLSA regular-rate methodology (DOL WHD)
Pure arithmetic from the statutory + regulatory definitions; mirrors the no-tax-on-overtime-calculator's research notes derivation.
4 claims
November 21, 2025 — IRS Notice 2025-69 issued (2025 transition guidance)
January 12, 2026 — IRS finalizes 2026 Form W-2 with Box 12 code TT
Tax-year 2025 W-2 reporting voluntary; tax-year 2026 W-2 reporting mandatory (W-2s issued January 2027)
IRS FS-2026-01 Q&A on the qualified overtime compensation deduction was published January 2026
1 claim
Effective tax years 2025–2028 (sunsets after Dec 31, 2028)
1 claim
IRS withholding tables (Circular E) NOT updated for OBBB — employees see benefit at tax filing
Notice 2025-69 explicitly confirms 2025 + 2026 withholding tables unchanged.
6 claims
California decoupled — FTB requires federal QOC add-back on the CA return
New York decoupled — IT-225 new add-back codes for "Add-back of exempt overtime pay" and "Add-back of exempt tip income"
Rolling-conformity states (Colorado, Illinois, New Mexico, North Dakota) automatically adopt federal change
Static-conformity states (Virginia, Wisconsin) require affirmative legislation to conform; default is no state benefit
No-income-tax states (AK, FL, NV, SD, TN, TX, WA, WY) are moot — federal deduction is irrelevant at the state level
New Hampshire — no income tax on wages (article's "no state income tax on wages" framing)
NH historically had only an interest-and-dividends tax (fully phased out at year-end 2024); never had a wage income tax. Article correctly frames as "no income tax on wages" rather than "no state income tax" (which would be inaccurate during the I&D phase-out).
1 claim
Governor Hochul's proposal (SB S587-A, January 2026) is for tipped income only — does not extend to overtime
Hochul's January 2026 SB S587-A targets tips only; the federal overtime decoupling via IT-225 remains in place independent of the proposal. Article describes the Hochul proposal's scope as tips-only and the IT-225 overtime decoupling as separate.
1 claim
Major payroll vendors (ADP, Gusto, Paychex, Rippling, isolved) released OBBBA-ready updates through late 2025
Categorical industry-pattern claim. Major payroll vendors all published guidance / readiness notices late 2025; legacy or custom payroll systems are the remaining tail-end risk. The specific vendor list (ADP, Gusto, Paychex, Rippling, isolved) is the canonical major-vendor short list per payroll-industry publications.
1 claim
0.5x premium / 1.5x total ratio — Box 12 code TT amount is exactly one-third of total time-and-a-half overtime pay
0.5x premium ÷ 1.5x total = 1/3. Identity follows from FLSA § 7 regular-rate methodology + § 225(c) "excess of the regular rate" definition.
1 claim
FICA (Social Security + Medicare) still applies to the full overtime check — only federal income tax is reduced
§ 225 is an income-tax deduction only; does not affect FICA tax base. IRS Q&A explicitly confirms FICA continues to apply.
53 unique sources cited across the report — click to audit any claim directly against its evidence.
derived from § 225(c) definition (Cornell LII) + FLSA regular-rate methodology (DOL WHD)
Every claim above is anchored to a clickable source — click any to verify what we said directly against the evidence.
See our fact-checking methodology for the standards this report follows.
Clockspot is online time clock software for small businesses — the simplest way to track employee time, with GPS location tracking, PTO accruals, job costing, and overtime calculation. Used in all 50 states since 2007.
Want to simplify how your team tracks time? See how Clockspot works.