How to handle Overtime and Tips exemption reporting

• Tracking FLSA overtime
• Setting up qualified overtime (OT) in Sage 50 Accounting
• One Big Beautiful Bill Act (OBBBA)

 CAUTION: Overtime wages comply with the Federal Fair Labor Standards Act (FLSA), not state regulations. Employees must work 40 regular hours in a week before qualifying for overtime pay. Employers classify overtime wages to ensure proper exclusion from federal income taxation, supporting accurate reporting on personal income tax returns. 

To locate Overtime wages for W-2 reporting, customize the Yearly Earnings Report to itemize the pay types.

1. Go to Reports & Forms, Payroll, and select the Yearly Earnings Report.
2. Select Columns.
3. Uncheck Payroll Field Info, then scroll down and check Pay Type Info.
4. Click OK to run the report.
5. Click Save to save the report. Supply a distinct Report name and click Save.
6. When running the W-2, use the above report to enter the Overtime wages. They’ll go into Other in Box 14. You'll need to insert the column for Box 14 manually into the W-2 Preparer grid.
   • NOTE:

     The IRS has stipulated that qualified overtime wages report to Box 12 with a code TT on the W-2. However, the 2026 W-2s aren't finalized, so we're waiting on direction from the IRS. We're working with the IRS and our tax form provider, Aatrix, to provide steps before the time to process W-2s.

For overtime, employees can deduct the premium portion (the “half” in time-and-a-half) of FLSA-mandated overtime pay, up to:

• $12,500 per year (single)
• $25,000 per year (joint filers) Phase-out begins at $150,000 AGI ($300,000 joint). This applies to the tax years 2025–2028.

 NOTE: Some states handle Overtime wages differently, such as California. In California, employees receive OT whenever the employee works more than eight hours on a daily basis and Double-Overtime after 12 hours in a day. This varies from the standard weekly threshold, where the employees need to reach 40 hours before receiving OT.