In July, several new federal tax provisions were adopted for the 2025 tax year. One of these is a new tax deduction on a certain portion of overtime pay that employees may claim when they file their 2025 federal taxes.  

The Internal Revenue Service has verified that there will be no changes to reporting for Form W-2, existing Forms 1099, and Form 941 and other payroll returns for the 2025 tax year. In addition, federal income tax withholding tables will not be updated for the 2025 tax year. This means that employers should continue to withhold federal payroll taxes on all overtime pay for the remainder of the 2025 tax year.  

Township officials should keep in mind that the IRS is working on new guidance for the reporting of overtime pay for the 2026 tax year. This may change how employers need to track and report certain overtime pay in 2026. Click here to learn more from the IRS.