Qualified Overtime Statements- What do you need to do?

As the year winds down, preparation for the new overtime reporting rules newly applies to employers. Employers are required to report to employees any “qualified overtime” amounts paid so that the employees may take the new deduction on their personal tax returns this year. The amount may be reported either in Box 14 of the W-2 or in a simple statement from the employer. Employees will be looking for that information to file their return and it should be provided to them by January 31, 2026. You may have heard (incorrectly) that employers are not required to report this information this year, but what actually happened was that the IRS said they will not apply penalties to the employer for failing to report or correctly report the amount. Employers that do not report these amounts will face an employee revolt!

So, what is “qualified overtime”? It is the additional overtime premium paid for hours worked over 40 in a week. For example, if Mary normally gets paid $30 hourly, but gets paid time and ½ for working more than 40 hours in a week, she will get paid $45 hourly for overtime, and only the additional $15 would be reported as “qualified overtime”.

Employers that have not kept specific track of overtime all year are allowed to use a reasonable estimate in 2025, but to qualify, overtime must be at least time and ½, and again only the premium qualifies.

Let’s say Mary works 50 hours this week and her pay is:

• 40 hours @ $30 per hour = $1,200

• 10 hours overtime at standard hourly rate of $30 = $300

• 10 hours at overtime premium addition of $15 = $150

• Total pay = $1,650

Qualified overtime = $150 (only the premium amount)

This $150 would be reported as “qualified overtime” to Mary by her employer on either Mary’s W-2 Box 14, or in a separate statement from the employer.

Don’t wait to start determining these amounts—your employees will be demanding it soon after the end of the year. If you use a payroll preparer and want it reported on the employee’s W-2, be prepared to provide that information, by employee, with year-end payroll. Otherwise, you will need to prepare a separate statement for the employees.

Services from Hamm Accounting Firm:

• If we process your payroll: Hamm Accounting Firm will prepare the qualified overtime statements for each of your employees, including all relevant information. Each statement will be provided to you, ready for distribution by the required deadline.

• If you are not using Hamm Accounting Firm for payroll: Please feel free to reach out if you would like assistance in preparing these statements. There would be a minimum fee for this service, and any additional work beyond that would follow our standard bookkeeping rates.

• Important note: Employers are responsible for providing this information to employees. Even if QuickBooks Online or Gusto is used to process payroll, these systems may not automatically report the required "qualified overtime" information on your 2025 W-2s.