No Tax on Overtime & Free $1,000 for Kids: Inside the Brand New IRS Regulations

The last week of May and early June 2026 saw a veritable explosion of news from the US Internal Revenue Service (IRS). A series of large-scale initiatives were announced and rolled out, affecting everyone from ordinary taxpayers to large enterprises and international investors.

Below, we break down the four most important IRS updates, explain how they work in practice, and provide concrete examples.

1. Launch of the "Trump Accounts" App (530A Accounts)

On June 1, 2026, the US Department of the Treasury, in collaboration with the IRS, launched the official mobile app for Trump Accounts (officially known as 530A accounts). These are new tax-deferred investment accounts for children that function similarly to traditional IRAs (Individual Retirement Accounts), but the owners are minors. The official start date for accepting contributions is set for July 4, 2026.

How It Works

Any child under the age of 18 with a valid Social Security Number (SSN) can open an account by filing Form 4547 with the IRS. The key feature this year is the federal pilot program. The US government is automatically seeding the account with $1,000 for every US citizen child born between January 1, 2025, and December 31, 2028.

Additionally, parents, relatives, or even employers can contribute to this account. The contribution limit for 2026 is $5,000 per year. The funds are invested in low-cost index funds and grow tax-free until withdrawal (upon reaching 18 years of age, the account transfers to the child's full control).

Practical Example: The Smith family welcomed a daughter in 2025. In May 2026, the parents filed Form 4547 along with their tax return. On June 1, they downloaded the Trump Accounts app and saw that the government had already reserved the initial $1,000 for their daughter. Starting July 4, the girl's grandmother will be able to transfer $100 there every month, building a starting capital for her 18th birthday.

2. Implementation of "No Tax on Overtime" (Working Families Tax Cuts Act)

As tax season approaches, the IRS continues to issue guidance on provisions of the "One, Big, Beautiful Bill," specifically regarding the elimination of taxes on overtime pay.

This benefit will be in effect from 2025 through 2028 and allows workers to deduct from their taxable income the portion of overtime pay that exceeds their standard rate (e.g., the "half" in a classic time-and-a-half structure).

Important Limits and Nuances

• Maximum Deduction: Up to $12,500 per year for single taxpayers and up to $25,000 for married couples filing jointly.

• Income Phase-outs: The benefit begins to phase out for those whose Modified Adjusted Gross Income (MAGI) exceeds $150,000 (or $300,000 for married couples).

• Reporting Requirements: Employers are now required to separately report qualifying overtime pay on Forms W-2 or 1099.

Practical Example: John works at a factory with a standard rate of $30/hour. For overtime (anything over 40 hours a week), he receives $45/hour (time-and-a-half). Over the year, he earned $10,000 specifically from overtime hours. Of this $10,000, his base pay represents $6,666, and the "premium" (the half) is $3,334. Under the new rules, John will be able to fully deduct this $3,334 from his taxable income.

3. New "Look-Back Interest" Calculator for Long-Term Contracts

On May 29, 2026, the IRS released a new Excel-based tool to help businesses complete Form 8697 — the Percentage-of-Completion Method (PCM) Look-Back Interest Calculator.

This tool is designed for companies engaged in large, multi-year projects (construction, complex manufacturing). When you enter into a multi-year contract, you pay taxes based on expected profits (the percentage-of-completion method). When the project concludes, you know the actual profit. The "Look-Back" method requires companies to recalculate taxes for past years based on the actual figures and pay (or receive from the IRS) interest on the difference.

Why This Matters for Legal Tech (and Where BrieflyGo Comes In)

Calculating interest retroactively is an administrative nightmare for accountants. The new IRS calculator automates the complex math of interest accrual, but the root of the problem lies at the contract signing stage. A business must clearly understand whether a specific agreement falls under the IRS definition of a Long-Term Contract.

This is exactly where the brieflygo.com toolkit comes to the rescue. When uploading a batch of contracts for analysis, the platform's AI algorithms can:

1. Instantly identify contracts whose duration spans beyond a single tax year.

2. Highlight specific payment terms that might trigger the application of the PCM (Percentage-of-Completion) method.

3. Provide a legal brief with a warning: "This contract potentially falls under Form 8697 requirements. Ensure your accounting department is prepared for the Look-Back Interest procedure."

Pairing AI contract analysis with official IRS calculators creates a seamless process for managing financial risks.

4. Protections for Sovereign Wealth Funds (Section 892 Updates)

Another major piece of news from May 29 is the publication by the Treasury Department and the IRS of new proposed regulations under Section 892 of the US Tax Code.

Section 892 exempts foreign governments and Sovereign Wealth Funds from paying taxes on income from passive investments in the US. However, this exemption does not apply if the income is derived from "commercial activities." The line between investing and commerce has often been blurry.

Core Updates

The new rules provide "grandfathering" (protection of legacy terms) and a transition period for sovereign foreign investors. They also introduce safe harbors. For instance, acquiring debt obligations will not be considered a commercial activity if these securities are registered under the Securities Act and the underwriters are not affiliated with the buyer.

Practical Example: A European country's sovereign wealth fund invests hundreds of millions of dollars in US corporate bonds. Previously, if the fund took too active a role in negotiating the loan terms, the IRS could interpret this as "commercial activity" (lending), leading to a loss of tax immunity. The new rules clearly define exactly which actions turn a passive investor into an active merchant, giving foreign capital the confidence to continue investing in the American economy.