Is Your Louisiana Small Business Ready for the No Tax on Overtime Change? 

Louisiana employers are hearing: “Will my overtime be tax free?” The short answer is that the federal “No Tax on Overtime” provision is a deduction workers claim when they file their personal taxes.

It does not change how you withhold federal tax on paychecks. For tax years 2026 through 2028, the tracking and reporting expectations around “qualified overtime” will take attention for businesses running payroll in QuickBooks. 

What “Qualified Overtime” Really Means 

Under the Labor & Fair Labor Standards Act, most nonexempt employees earn time and a half for hours over 40 in a workweek. The law’s “qualified overtime” is generally the extra half portion that sits on top of the regular rate, not the whole overtime payment.

If you pay more generously than federal rules require, the amount above that required half portion may not qualify. 

Why It Matters to Your Payroll Desk in 2026 

The IRS has said taxpayers can only claim the deduction based on qualified overtime that is reported on a W-2 or other specified statement. For 2025, separate reporting is optional. For 2026 to 2028, expect tighter consistency between how overtime is calculated, how it is tracked, and what your year end forms show. 

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Make sure your overtime setup matches the FLSA baseline so the system can distinguish the qualified piece. Review any custom pay types, time tracking rules, and blended rate situations.

Multiple rates, bonuses, commissions, or shift differentials can change the “regular rate,” and qualified overtime depends on that math. Keep documentation in one place so your payroll admin and tax preparer are not guessing later. 

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Set a meeting with your payroll provider or tax pro now. A small tweak in overtime mapping today can prevent confusion when 2026 W-2s are prepared.