Federal law regarding tips and overtime

A new federal law passed on July 4, 2025, provides a new deduction regarding overtime wages and tips. As long as you enter overtime (Shift=6) and tips on an employee timecard, these amounts will display on future W-2s.

Sage is aware of the Federal bill passed on July 4, 2025, that impacts how federal withholding taxes handle overtime and tips. We're not making any immediate changes to federal withholding calculations, as they're unnecessary for the rest of 2025.  In addition, we're waiting on final documentation from the IRS regarding any potential year-end reporting changes. If you have further questions regarding the new laws, contact your tax advisor.

For details regarding the regulation, visit irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors.

No tax on overtime

Timecard Entry for 2026

• To prepare for the updated paycheck stub, enter all qualified overtime hours with a Shift = 6.
  
• New check stubs will show the 0.5 premium on overtime earnings separately. This applies to overtime rates (1.50, 2.00, 3.00) when Shift = 6.

Display overtime on paycheck stub

• Be on Sage BusinessWorks 2024 SP9 or 2025 SP2 or higher. See, Adding qualified overtime premium fields to a check form for detailed instructions.
• Enter qualified overtime hours with Shift = 6. This ensures the qualified overtime will appear on the stubs.
   NOTE: Print W-2s before installing 2024 SP9 or 2025 SP2.   

State-Specific Guidance (for example, California):

• Employers must review each pay stub to ensure overtime meets Federal requirements.
  • Enter qualified overtime hours (hours beyond 40 in a week) with Shift = 6. This ensures the qualified overtime will appear on the stubs.

Report that shows overtime hours

• If you have 2025 SP3 or higher installed, access the Employee Personal Pay Report. 
  • Select PR, Reports, Employee Reports, Employee Lists.
  • Click ... and select the Employee Personal Pay Report.
  • Select the desired date range for the report and click Print or Preview.
• Run the Employee Hours List customized to show one employee per page. For detailed instructions see, report for overtime totals with a page for each employee.
  • This shows the year-to-date overtime totals for each employee. Use these figures to help you follow the No Tax on Overtime and Tips.

Entering totals on the 2025 W-2 

• The One Big Beautiful Bill (OBBB) Act won't impact the format of the 2025 W-2 form.
• Existing forms and withholding tables will remain unchanged for the 2025 tax year.
• It isn't a requirement to add to the W-2.
• If you choose to do so, follow the instructions for adding an additional box for W-2s. Consult your tax advisor for specific reporting requirements.

2026 1099s

Sage BusinessWorks only tracks vendor 1099 payments.  You’ll need to track any overtime manually and then add it to the 1099 at the end of the year.

No tax on tips

• We won’t change how the software handles tips. Continue to enter your tips on the timecard.
• Consult with your tax advisor or the IRS website for specifics on reporting requirements.
• If you also have non-qualified tips, see Track qualified and non-qualified tips.

Treasury Tipped Occupation Codes (TTOC)

• New field available in 2024 SP8 or 2025 SP1 or higher.
• Once you install the update, go to PR, Employees, Maintain Employees, Status and enter a valid TTOC code.
  
• For a listing of TTOC status values see, IRS guidance for listing occupations that receive tips.

2026 1099s

Sage BusinessWorks only tracks vendor 1099 payments.  You’ll need to track any tips manually and then add it to the 1099 at the end of the year.