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Transferring an income item's amounts

Eric Updated by Eric

This feature was designed for Qualified Overtime.

Three major caveats in the new "No Tax on Overtime" deduction that are important to understand are:

  • Only hours worked over 40 in a week count as overtime as far as the deduction is concerned. For example, time-and-a-half earned for working more than 8 hours in a day in states like California do not count as overtime.
  • For overtime hours that do count, only the premium portion of overtime may be deducted, limited to the "half" in "time-and-a-half" (e.g. one-third of it). Furthermore, only one-quarter of double-time qualifies.

In 2026 and beyond, Qualified Overtime amounts will transferred to Box 12 on Form W-2.

Users should adjust their overtime Income Items like so.

Employers who did not give more overtime than what is federally required

  1. Double-click on an employer and click Payroll Setup.
  2. Double-click the Income Item for time-and-a-half overtime, e.g. Overtime Pay (hourly).
    1. Select Box 12 in Report amount on.
    2. Select TT - Qualified Overtime Compensation in Income Item.
    3. Select 33.33% in Pct of Amount to report there.
  3. Click OK then follow onscreen prompts.
    If the income item doesn't not apply to many employees, consider adding it manually only for those it affects.
  4. Repeat for other overtime income items with the appropriate percentages. For double-time, the percent will be 25% instead of 33.33%.

Employers who give more overtime that what is federally required

Method 1: Put unqualified overtime in its own category

This method assumes the amounts put into the built-in OT (and OT2, if applicable) income items will be qualified overtime to transfer to Box 12 and that unqualified overtime will be put into user-added income items.

  1. On the Income Item setup screen click Add. Fill out the required fields.
  2. Open the built-in overtime Income Items (Overtime Pay, Overtime Pay 2) and set each to "Report amount on" Box 12 with the correct code and the correct percentage.
  3. Click OK.

Method 2: Utilize the Qualified Overtime (Info Only) column

If the employer offers overtime or exists in a state that as overtime rules beyond what is federally required (e.g. daily overtime), the user can instruct the program to flow a specified percentage of that overtime to a Qualified Overtime (Info only) income item.

This new income item is not included in net pay, and exists to show the user how much of overtime qualifies according to the rules the user creates, to store that value, and to transfer it to Box 12.

  1. Add the new Qualified Overtime (Info only) income item to the employer's setup screen.
    1. Select Box 12 in Report amount on.
    2. Select TT - Qualified Overtime Compensation in Box 12 code.
    3. Select 100% in Pct of Amount to report there.
    4. Click OK.
  2. Select a different overtime income and click Edit, e.g. Overtime Pay (hourly).
    1. Select Another income item in Report amount on.
    2. Select Qualified Overtime (Info Only) in Income item:.
    3. Select the applicable percentage in Pct of Amount to report there.
      Generally, time-and-half over 40 hours/week should be 33.33%, double time over 40 hours/week should be 25%, and daily overtime or any other overtime that is granted when working under 40 hours/week should be 0%.
    4. Click OK.
  3. Repeat for any other overtime income item(s), e.g. Overtime Pay 2 (hourly).

When hours/amounts are input for overtime, the qualified amounts will be calculated in the Qual OT column.

How did we do?

Treasury Tipped Occupation Codes (TTOC)

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