Overtime Premium Reporting and the One Big Beautiful Bill Act

The One Big Beautiful Bill Act includes provisions that allow certain Overtime Premium earnings to be treated as tax‑free income up to a defined threshold. This change affects how overtime premiums are calculated, reported to employees, and included on year‑end tax forms beginning with tax year 2025.
This article explains employer responsibilities, how overtime premium amounts are calculated, and available options for reporting these amounts to employees. The information in this article is specific to 2025 and will be updated for 2026 and beyond.

What Is an Overtime Premium?

An Overtime Premium is the portion of overtime pay that exceeds an employee’s regular earnings. It is calculated using the employee’s Regular Rate of Pay and the overtime hours worked during a pay period.
Under the One Big Beautiful Bill Act, qualifying overtime premium amounts may be excluded from taxable income, subject to federal limits and eligibility requirements.

W‑2 Reporting for 2025
 

For tax year 2025, employers are encouraged to:

• Report qualifying Overtime Premium totals in Box 14 of the employee’s Form W‑2, or
• Provide the employee with their overtime premium amount through another written method

This additional reporting helps employees and tax professionals correctly apply the tax‑free treatment when filing returns.

How Overtime Premium Amounts Are Calculated

Overtime premium amounts are calculated using:

• Half of the employee’s Regular Rate of Pay
• Multiplied by hours worked per pay period that qualify for overtime

Most overtime calculations follow the Fair Labor Standards Act (FLSA). However, some states have overtime rules that differ from FLSA standards.
States With Different Overtime Rules
The following states have overtime rules that differ from the FLSA:

• California
• Alaska
• Colorado
• Nevada
• Oregon

Accurate overtime premium calculations must account for these state‑specific requirements.

If You Use Our Payroll Product

Clients using our Payroll product do not need to take any additional steps.
Our system automatically:

• Calculates the Overtime Premium for qualifying employees
• Applies state‑specific overtime rules, including the five states listed above
• Populates the overtime premium total in Box 14 of the employee’s W‑2

This ensures accurate reporting and reduces year‑end manual effort.

If You Do Not Use Our Payroll Product

Clients who do not use our Payroll product will need to calculate overtime premium amounts manually.
Your payroll provider may be able to:

• Provide overtime premium totals directly, or
• Recommend best practices for calculating overtime premiums based on regular rate of pay and overtime hours worked
• Use reports from within or outside GS to take their Overtime codes and divide by 3 to take 1/3 the amount as the expected premium to write off

Options for Communicating Overtime Premium Amounts to Employees

If you are not using our Payroll product, there are multiple ways to get overtime premium information to employees.
Option 1: Update Box 14 in Year‑End Forms

1. Allow W‑2 forms to generate in the system
2. Export the data using the All Form Data Export
3. Update Box 14 for each employee with their Overtime Premium amount
4. Reimport the updated data into Year End Forms
5. Create a new Formset using the updated information

This option allows the overtime premium to appear directly on the W‑2. Option 2: Provide Overtime Premium Amounts Separately
Another option is to communicate overtime premium amounts outside of the W‑2 process.
For example:

• Use Microsoft Word Mail Merge to generate individualized emails or letters
• Include each employee’s Overtime Premium total in the communication

This approach satisfies the recommendation to provide overtime premium totals to employees, even if Box 14 is not updated.

Key Takeaways

• The One Big Beautiful Bill Act allows qualifying overtime premium amounts to be tax‑free up to a threshold
• Employers are encouraged to report these amounts in W‑2 Box 14 for 2025
• Our Payroll product automatically calculates and reports overtime premiums, including state‑specific rules
• Employers not using our Payroll product must calculate and communicate overtime premium amounts manually
• Multiple options are available to provide overtime premium information to employees