Calculating the federal qualified overtime deduction for 2025 payroll records (U.S. edition)

Calculating the federal qualified overtime deduction for 2025

Key components of the calculation

• Weekly threshold: The deduction applies only to hours worked beyond 40 in a single workweek.
• Qualified premium only: The deduction covers only the federally required extra half-time above the regular rate, not full overtime pay.
• W-2 reporting: For the tax year 2025, the amount appears in Box 14 with the code OBBBTT. In later years, it appears in Box 12.

Employees use their W-2s to figure out their allowed overtime deduction when filing taxes.

Important notes

• Federal overtime fields in the 5-2-2 Payroll Records window don’t affect income tax withholding.
• Employees must submit a new W-4 form if they expect overtime pay with reduced withholding.
• See the Deductions Worksheet for guidance on Step 4(b), which impacts income tax withholding.

Calculating the qualified overtime deduction for 2025 payroll records

For the 2025 tax year only, use the Calculate Federally Qualified Overtime for 2025 option in the 5-2-2 Payroll Records window. Beginning in 2026, Sage 100 Contractor automatically tracks federal overtime hours and deductions. This requires no separate calculation.

Steps to calculate the deduction

1. Open the 5-2-2 Payroll Records window.
2. From the Options menu, select Calculate Federally Qualified Overtime for 2025.
3. Use queries in the 5-2-2 Payroll Records to review the calculation results.
   • Go to 5-2-2 Payroll Records.
   • Click File, Find.
   • Choose one of the following:
     • Payroll Records~Federally Qualified Overtime for Biweekly Payroll.
     • Payroll Records~Federally Qualified Overtime for Weekly Payroll.
   • Click Run Query.
4. Adjust amounts on individual payroll records as needed.
   
   NOTE:

   You need administrator rights and exclusive company access to run this calculation. Count only hours over 40 per week toward the federal deduction, and deduct only the premium portion.

    

After calculating the overtime deduction

1. Use the queries in 5-2-2 Payroll Records to review the results.
   • Go to 5-2-2 Payroll Records.
   • Click File, Find.
   • Choose one of the following:
     • Payroll Records~Federally Qualified Overtime for Biweekly Payroll.
     • Payroll Records~Federally Qualified Overtime for Weekly Payroll.  
   • Click Run Query.
2. Adjust any amounts on individual payroll records as needed.

Understanding when Federal qualified overtime calculations aren’t accurate

Federal Qualified Overtime Deduction (U.S. edition).