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Process qualified overtime compensation in Sage 100 for 2026

Created on  | Last modified on  Highlight Matches

Summary

Learn how to configure Sage 100 to track qualified overtime compensation for the tax year 2026. This setup ensures correct reporting on Form W-2.

Description

Learn how to apply the OBBBA rules for nontaxable overtime and update payroll settings in Sage 100.

NOTE:

MUST install Payroll Update 2.26.1

 
Compatible with versions:

o Sage 100 2025 (7.50)
o Sage 100 2025 (7.40)
o Sage 100 2024 (7.30)
o Sage 100 2023 (7.20)
o Sage 100 2022 (7.10)

Cause

Federal Tax changes included in the One Big Beautiful Bill Act.

NOTE:

This enhancement doesn't change payroll tax calculations or withholding on the employee's paycheck. Instead, employees claim the qualified overtime deduction on their personal income tax returns. If an employee expects a larger refund, they can update their Form W-4 as needed. This enhancement helps users identify and track qualified overtime more easily. The system prints the qualified overtime amount on employee paychecks and reports it on Form W-2 beginning with tax year 2026.

 

Resolution

 

 

 

 

 

 

 

Create the overtime earnings code

  • Select an Earnings Type of Overtime.
  • Enable the FLSA (Fair Labor Standards Act) Wages Eligible for No Tax on Overtime checkbox.
  • Select the checkbox only when the earnings type equals Overtime.
  • For non-Qualified Overtime (See Note below) create an additional Earnings Code for overtime. Don't select the checkbox for FLSA Wages.

 

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NOTE:

Additional guidance

  • Review federal overtime regulations at the Department of Labor Overtime.
  • Confirm state-specific overtime rules that differ from FLSA guidelines.
    • Some States pay overtime based on daily hours worked.  
    • Check with your tax professional for guidance for your state.

 

 

Configure tax rules

  • Assign any overtime tax rule subject to Federal Income Tax Withholding.
  • Don't use tax rule 800151 (DO NOT USE).

Understand year-to-date accumulation

  • Qualified nontaxable overtime updates in Payroll > Employee Maintenance > Tax Summary > Benefits tab.
  • The amount in the Qualified NonTaxable OT flows to Box 12 TT on the Form W-2.

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Timing of Installation of PR Product Update 2.26.1

  • Install the product update before processing payroll with qualified overtime to allow Payroll to calculate the amounts automatically. 
    • Enter manual adjustments when you install the product update after processing qualified overtime. 
    • Use the Earnings tab in Employee Maintenance to calculate the year-to-date overtime total.

How the program calculates qualified nontaxable overtime

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  • Example calculation
    • Regular Rate = $40.00/hour
    • OT Overtime Eligibility (1.5 multiplier) $1,020 / 3 = $340.00
    • DT Double Overtime Eligibility (2.0 multiplier) $160 / 4 = $40.00
    • Total overtime earnings: $1,180
    • Total Qualified nontaxable overtime: $380

 

Processing payroll data entry 

The system calculates pay cycles with a period starting date in 2026.

TIP:

The secondary grid on the lines tab will display the nontaxable overtime after leaving the line and returning to it. The Earnings code for overtime must have the FLSA Wages Eligible for No Tax on Overtime checkbox selected.

 

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Print setup for checks and direct deposits

  • Select the Print Nontaxable Overtime checkbox during Check and Direct Deposit Printing.
  • The field appears only for payroll checks dated between 2026 and 2028.

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Verify W-2 reporting

  • Review values in the Aatrix Preparer Grid and employee W-2 copies.
  • Confirm the Benefits tab amount appears in Box 12 with TT Code.
  • Use the dropdown to select the TT code.

 

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TIP:

For legal questions, contact your Tax Accountant. This includes how to calculate the qualified overtime amount manually. Refer to the IRS.gov, the Federal Department of Labor, or the FLSA (Federal Labor Standards Act) for additional information on the details.