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Calculating Qualified Overtime in Payroll System 2025

Eric Updated by Eric

Instructing the program how to calculate Qualified overtime

Payroll System 2025 can transfer overtime amounts to Box 14 of the W-2. If you encounter this popup message, you may instruct the program to attempt to automatically calculate the amount or to use the amounts you input into the new Qualified Overtime (Info Only) income item.

The prompt appears slightly differently depending on the employer's state. Read it carefully.
Click Manual if it is desired that no overtime be transferred. In this case you would not use the Qualified Overtime (info only) column either).

Auto-detect

The program will attempt a search of paychecks to find overtime and calculate the amount of premium overtime.

Due to the diversity of state and employer overtime requirements, this tool can save data entry time by calculating premium overtime in most cases but it is the final responsibility of the preparer to ensure that only the premium portion of overtime as required by the Fair Labor and Standards Act (FLSA) is present.

The program will look in three places in the Payroll Grid for paychecks with amounts in:

  • The "OT" column IF the OT hourly rate is 1.5x the regular hourly rate. (If the state is AK, CA, CO, CT, NV, OR, or RI the hourly rate restriction does not apply.)
  • The "OT2" column IF the OT2 hourly rate is 2x the regular hourly rate (i.e. double-time). (If the state is AK, CA, CO, CT, NV, OR, or RI the hourly rate restriction does not apply.)
  • The new Qual OT column

It will then attempt to transfer the following amounts to Box 14 of the W-2.

  • One-third of the "OT" column amount. Only the "half" in "time-and-a-half" is qualified overtime (one-third).
  • One-quarter of the "OT2" column amount. Again, only 0.5x of the 2x amount is qualified overtime, even if it's double overtime.
  • 100% of the amount in the "Qual OT" column. Only fully qualified amounts should have been input into this column.
If there is any overtime that does not qualify for the federal deduction, use the Manual option instead.
Verify that the transferred amounts meet expectations and that only qualified overtime was transferred. The program can only make assumptions about overtime pay; only the user/preparer has the full set of information to determine what actually is qualified overtime.

Manual

Any amount you put into the new Qualified OT (Info Only) income item will flow to Box 14. Use this option to have more control over the amount.

Employees in states with overtime rules different from federal

Some states have overtime laws that are more generous than federal law. For example, California requires overtime to be paid if an employee works over 8 hours in a day or 40 hours in a week, but federal law only requires it be paid after 40 hours in a week.

This popup message above will appear if the program detects the employee is in such a state. Not all states are set up to be detected, so check the state laws the employees and employers are subject to.

Payroll System 2025 can transfer overtime amounts to Box 14 of the W-2. If you encounter this popup message, you can have the program attempt to automatically calculate overtime or utilize the new Qualified Overtime income item.

Only overtime that matches federal law qualifies for the deduction.

Auto-detect

The program will attempt to find and calculate premium overtime amounts.

  • One-third of the "OT" column amount. Only the "half" in "time-and-a-half" is qualified overtime (one-third).
  • One-quarter of the "OT2" column amount. Again, only 0.5x of the 2x amount is qualified overtime, even if it's double overtime.
  • 100% of the amount in the "Qual OT" column. Only fully qualified amounts should have been input into this column.
Verify that the transferred amounts meet expectations and that only qualified overtime was transferred. The program can only make assumptions about overtime pay; only the user/preparer has the full set of information to determine what actually is qualified overtime. It is the final responsibility of the preparer to ensure overtime amounts are correctly reported.
Use Payroll System's new Qualified Overtime Calculator to assist in calculating the allowable amount of overtime that should be reported on the W-2 (or an attachment to the W-2).

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