New Overtime Reporting Under the OBBBA

Wallace "Wally" F. Suttle II By Wallace “Wally” F. Suttle II

We hope the new year is off to a good start for each of you but wanted to take this opportunity to make you aware of a payroll reporting change that was a result of the One Big Beautiful Bill Act (OBBBA).

As you may remember OBBBA included a provision that allowed taxpayers a deduction of their overtime and was made effective retroactive to January 1, 2025. The deduction applies to the premium portion (the extra 50%) of the overtime required under the Fair Labor Standards Act for hours worked over 40 in a work week. Please note that the premium portion is limited to 50%. Below are two examples of overtime that qualifies:

Example 1: Assume time-and-a-half pay is $1,500. $1,000 is regular pay + $500 is the OT premium portion. The $500 is what is eligible for this new deduction. Dividing the time-and-a-half pay by 3.

Example 2: Assume double-time pay is $2,000. $1,000 is regular pay + $1,000 is the OT premium portion. Only $500 is eligible for this new deduction. Dividing the double-time pay by 4.

Now that you understand how to calculate the qualifying overtime, how do you report it to your employees?

2025 W-2 Reporting Requirements:

For the 2025 tax year, there are no changes to the way overtime pay is reported on Form W-2. Overtime pay is not reported separately; instead, it is included in the total wage amounts reported in the following boxes:

Box 1: Wages, tips, other compensation (taxable wages for federal income tax)
Box 3: Social Security wages (up to the annual wage base)
Box 5: Medicare wages and tips (no wage base limit)

Employers are not required to separately report qualified overtime compensation on the 2025 Form W-2, and there will be no penalties for not doing so, provided the rest of the return is complete and correct. Employers may, if they wish, voluntarily provide the amount of qualified overtime compensation to employees using Box 14 of the W-2 or a separate written statement, but this is not required for 2025.

2026 W-2 Reporting Requirements:

Beginning with the 2026 tax year, the IRS will require separate reporting of qualified overtime compensation. A new code (TT) will be added to Box 12 of Form W-2 specifically for this purpose. Employers will need to track and report qualified overtime compensation separately from regular wages starting with the 2026 Form W-2 filing. We encourage you to make sure your payroll software has the capability to track this separately to smooth your reporting in January 2027.

Suttle & Stalnaker, PLLC is ready to help you. If you would like more information on how this applies to you, please contact, Wally Suttle, CPA at wsuttle@suttlecpas.com. You may also contact Bart Scott, CPA, CVA, MBA at bscott@suttlecpas.com.