Handling Qualified Overtime Compensation Reporting for Tax Year 2025

Under the OBBBA, eligible individuals can claim a tax deduction for "qualified overtime compensation" for tax years 2025 through 2028. The deductible amount is the additional amount paid for overtime - which means the "half" in time-and-a-half.

For example: An employee earns $10 per hour and has a total of 10 hours of overtime paid at $15 per hour, the calculation would be:

[Overtime pay rate: $15] - [Normal pay rate: $10] = [$5 per hour] x [10 overtime hours] = $50 qualified overtime compensation.

There will be more official, detailed reporting requirements in future tax years, but all that is required for 2025 is that employers "make a reasonable effort" to report the qualified amount to employees. The easiest solution would be to add that amount in a note in Box 14 of the W2. For more details, refer to Section 70202 in this article on the IRS website.

Versions 12, 14, and 15 of PowerChurch Plus have been updated with a new report, found under Accounting > Payroll > Reports - Payroll called "Qualified Overtime Compensation".

Run this report and select the appropriate date range to include. The report will, by default, only include the employee name and qualified amount to report. Optionally, check "Print Detail" to include the list of Payroll transactions with overtime for each employee, showing the calculations that PowerChurch used to get the qualified amount.

With the qualifying amounts in hand, when you are ready to process W2s, go to Accounting > Payroll > Tax Reporting and choose W2s. When you reach the "Employee W2 Information" step that shows a screen preview of each employee's W2, use the Next/Previous buttons at the top of the screen to step through each employee.

 If the employee has qualified overtime amounts to report, click the edit button in Box 14 to open the Edit Box 14 window.

Click the Add Item button, then enter something like the following:

Name: "Qualifying Overtime Compensation"
Abbreviation: "QUAL. OT"
Amount: Enter the amount of qualified overtime compensation for this employee

Click OK to accept the changes and that new Box 14 item and abbreviation will then be available for other employees as needed.