The One Big Beautiful Bill Act (OBBBA), signed into law in 2026, contains a provision that directly affects millions of taxpayers in IRS resolution: overtime income is now excluded from gross income for federal tax purposes. While this is primarily a tax reduction measure, it has significant downstream effects on IRS collection calculations.
Why This Matters for IRS Resolution
What the OBBBA Actually Changed
The relevant provision excludes overtime wages from gross income for federal income tax purposes. In plain terms: if you earn overtime pay, that money is no longer counted as taxable income on your federal return.
This is not a deduction or a credit. It is a full exclusion. Overtime income simply does not appear in your adjusted gross income (AGI) for federal purposes.
How This Affects Offer in Compromise (OIC)
The OIC formula is straightforward: your minimum acceptable offer equals your Reasonable Collection Potential (RCP), which is calculated as:
RCP = (Monthly Disposable Income x Future Income Multiplier) + Net Equity in Assets
Monthly disposable income is your gross monthly income minus IRS-allowable expenses. If overtime is excluded from gross income, your reported monthly income drops. That means your monthly disposable income drops. That means your RCP drops. That means your minimum acceptable offer drops.
Example: A taxpayer earning $5,000/month base pay plus $1,500/month overtime previously had $6,500/month gross income for RCP purposes. Under OBBBA, only $5,000 counts. If their allowable expenses are $4,200, their monthly disposable income drops from $2,300 to $800. For a lump-sum offer (12-month multiplier), that is the difference between a $27,600 future income component and a $9,600 one.
How This Affects CNC Status
Currently Not Collectible (CNC) status requires proving that your monthly income minus allowable expenses equals zero or a negative number. When overtime income is excluded from the calculation, more taxpayers will meet this threshold.
A taxpayer who was previously $500/month over the CNC threshold because of overtime hours may now qualify. The IRS still reviews CNC status annually, but the initial qualification calculation has shifted in the taxpayer's favor.
How This Affects Installment Agreements
For Partial Pay Installment Agreements (PPIAs), your monthly payment is based on disposable income. Lower reported income means lower monthly payments. For Streamlined agreements ($50,000 or less), the payment is calculated to pay the full balance before the CSED expires, so the impact is less direct but still relevant for borderline cases.
What Did NOT Change
Several important things remain exactly the same under OBBBA:
- The 10-year CSED collection statute (IRC Section 6502) is unchanged
- OIC application fee remains $205 (waived for certified low-income)
- IRS National Standards for food, clothing, and other necessities are unchanged
- Tolling events (bankruptcy, OIC filing, CDP hearing) still pause the CSED clock
- All required tax returns must still be filed before applying for any relief program
- The Fresh Start lien threshold ($25,000) and Streamlined IA threshold ($50,000) are unchanged
What to Do Now
If you are currently in an IRS resolution program or considering one, the OBBBA overtime exclusion may change your numbers. Specifically:
- Re-run your OIC calculation using the OIC Eligibility Calculator with your base pay only (excluding overtime)
- Check CNC qualification by recalculating your monthly income minus allowable expenses without overtime income
- Review your installment agreement payment if you are on a PPIA and your payment amount was based on income that included overtime
IRS Implementation Timeline