Tax News: Overtime Deduction and Trump Accounts Under the 2026 Rules

Summary

The IRS recently updated its frequently asked questions on the overtime pay deduction and added reporting details. Under the updated guidance, workers generally may claim the deduction only for amounts reported on Form W-2, Wage and Tax Statement, beginning in tax year 2026. The IRS also clarified that the deduction does not make overtime pay exempt from gross income — it is a deduction, not an exclusion.

Worth watching alongside it are the proposed regulations for "Trump accounts." The proposal is said to affect millions of children, families and employers, and it addresses self-employed owners, Sec. 125 cafeteria-plan contributions, and employer matching of the government's $1,000 pilot-program contribution. The proposed regulations also clarify the $2,500 limit that applies to workers.

For cross-border households, the practical point is this: where a family member has US wage income and files a US return, the return must distinguish carefully between a deduction and an exclusion, rather than assuming overtime is untaxed. Meanwhile, the rules for the new account type remain at the proposed stage, so eligibility, contribution limits and interaction with employer benefit plans could still shift.

Note that the above reflects current public materials; actual treatment depends on the final regulations and individual circumstances.

Sources

Our Take

In the first year of a new rule, the most common mistake is treating a deduction as an exclusion. For dual filers with US wages and Canadian ties, the return's treatment must line up with Form W-2, and any mismatch invites follow-up questions. On the proposed account rules, it is sensible to understand the framework now and defer decisions until the regulations are final. Where cross-border benefits and contributions are involved, consult a licensed CPA.

Disclaimer: This article is general information only and does not constitute tax advice; it should not substitute professional tax counsel. Please consult a licensed CPA for advice specific to your situation.