For 2025, transition language in the law will allow employers more flexibility for reporting this year’s overtime amounts. The law says employers “may designated as qualified overtime compensation by any reasonable method specified” by the Treasury Secretary. approximate a separate accounting of amounts Separate reporting for the rare cases when someone who may be overtime-eligible under the FLSA is also a nonemployee for tax purposes is to be required. The Treasury Secretary is required to modify income tax withholding procedures for years starting Jan. 1, 2026. What We Don’t Know About The Overtime Provision Will all overtime amounts need to be reported, even beyond the $25,000 limit? How will this apply to those in occupations that have special overtime requirements under the FLSA? Where on the Form W-2 will amounts be reported? Speculation is that Boxes 12 and 14 (Other) could be used.
Under the FLSA, the overtime pay amount is the additional one-half the regular hourly rate of pay owed employees in any workweek for hours worked generally in excess of 40. Additional premium overtime amounts sometimes paid to workers that are not required under the FLSA are not deductible for tax purposes. Tip amounts are not to be included in determining the regular rate of pay for this deduction. Overtime pay can be tax-free up to $12,500 a year ($25,000 if the individual files a joint return). An overall income threshold to qualify for the exclusion includes a gradual phase- out of the ability to deduct amounts starting at $150,000 in “modified adjusted gross income” a year. Reporting of amounts to the government and the receiver of overtime pay using Form W-2, Wage and Tax Statement, will be required. Because of the required Form W-2 reporting, employers will need to build accumulators for each worker’s qualified overtime amounts. Previously, this was not required for federal tax purposes.
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ISSUE 14 GLOBAL PAYROLL MAGAZINE
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