Qualified Overtime Calculator

Eric Updated by Eric

The Qualified Overtime Calculator will calculate a single employee's qualified overtime when the user inputs total hours worked in a particular week and the base pay rate.

Although new rules limit OT deductions to FLSA-required overtime based on weekly hours, the IRS in 2025 allows any ‘reasonable method’ for computing the permitted OT.

Qualified Overtime is the amount of overtime that can be deducted using the OBBBA's No Tax on Overtime provision. The calculator will help you avoid common pitfalls by following important requirements when reporting qualified overtime:

  • Only the premium portion—the "half" in "time-and-a-half"—qualifies.
  • Only the overtime that conforms to the Fair Labor Standards Act (FLSA) qualifies, i.e. hours that exceed 40 in a given week. Again, only the half portion of "time-and-a-half" qualifies, so if some hours worked over 40 in a week were paid double-time, only 25% of that paid overtime qualifies.
Do not report amounts paid for occupations that do not qualify for this deduction. See IRS documentation.

For the several states mandate overtime that exceeds federal requirements

California, for example, mandates overtime if the employee worked over 8 hours in a day, which is beyond what is federally required. Only overtime that matches the federal definition qualifies for the deduction.

Example #1

In week #1, an employee works 41 hours, including one 10 hour day for which 2 hours of overtime was required in California.  For the overtime deduction, the overtime in a single day is simply ignored.  The only federally required overtime is the 1 hour that exceeded 40. If the employee’s normal hourly rate was $30/hr, their qualified overtime will be calculated as $15 (the “half” in “time-and-a-half”).  

Example #2

A company's policy is to pay double-time on holidays to its employees.  Employee Edward worked 40 hours in Week #1, which included 8 hours (paid double-time) on a holiday. No qualified overtime will be calculated, because his hours didn’t exceed the federal standard of 40 hours.

If Edward’s normal pay rate is $20/hour, and his hours had instead totaled 41 for the week, $10 would be calculated (the “half” in “time-and-a-half”). It is irrelevant that he was paid double-time; only “time-and-a-half” is mandated federally.

Large Employers

Keep in mind that the IRS is allowing "reasonable methods" of calculating the qualified OT in 2025.

If you are in a state that follows FLSA requirements for OT only, and have utilized our program provided "Overtime Pay (hourly)" Income item, the program should automatically calculate the qualified OT (and carry it to Line 14 of your employee's W-2's).

If not, and you calculate the OT based upon your own reasonable method, you can then either enter that in the Employee's Payroll grid under the new Payroll tax item column, Qualified Overtime (Info only), perhaps making just a single entry with the year's total of Qualified OT. Afterwards when you create the W-2, the program will carry this to Box 14 of the Employee's W-2.

Or you can enter your reasonably calculated Qualified OT directly in Box 14 on the Employee's W-2.

An example:

Employee A works 50 hours of OT in 2025. Their base rate is $20/hr; all OT was paid at $30/hr. ALL of the overtime was for hours worked in excess of 40 in a week. 50 hours x $30 = $1500. Since only the "half" in "time-and-a-half" is permitted, divide by 3 = $500 of Qualified OT. This is the amount you would enter in Box 14 of the Employee's W-2, with the description of OT or QualOT .

How did we do?

PA Form REV-1667 - CSV File Upload Instructions

Reporting Qualified Overtime 2025 W-2

Contact