Overtime Reporting Under OBBBA
Starting with tax year 2025 through tax year 2028, the ‘One Big Beautiful Bill Act’ (OBBBA) requires employers to file information returns and furnish statements to employees reporting qualified overtime compensation paid each year. The Internal Revenue Service (IRS) will provide transition relief for tax year 2025 for taxpayers claiming the deduction, as well as for employers responsible for the reporting.
For tax year 2025, the IRS has not made any changes to Form W-2. Brown Plus recommends reporting qualified overtime information in Box 14 with code ‘OVT’ or providing a separate statement to each employee.
Qualified overtime compensation is calculated as the amount that exceeds the employee’s regular rate of pay (such as the “half” portion of “time and one-half”) and is based on Section 7 of the Fair Labor Standards Act (FLSA). Some states and employers may use daily or other methods (such as paid time off) for calculating overtime pay. The amount that is to be reported is the premium portion paid for overtime over 40 hours per workweek.
The requirements of FLSA state that non-exempt employees must receive overtime pay for hours worked over 40 in a workweek at a rate of pay of time and one-half their regular rate or greater. Overtime pay is not required for weekends or holidays. Please reference DOL Fact Sheet #23 for more specifics.
Overtime Reporting Example:
John’s regular hourly rate is $35/hour. His overtime rate is $52.50 (one and a half times his regular rate).
From January to September 2025, John works 62 hours of overtime. On October 1, John receives a raise. His new regular hourly rate is $38/hour, and his new overtime rate is $57. From October to December, he worked 11.50 hours of overtime.
$52.50 – $35 = $17.50 (half portion of overtime) x 62 hours = $1,085
$57 – $38 = $19 (half portion of overtime) x 11.5 hours = $218.50
$1085 + $218.50 = $1,303.50 (reportable overtime on John’s W2)
Primary and Secondary Agriculture Exemption:
Employees who are employed within primary or second agriculture sectors are exempt from FLSA, so if they are paid overtime, they do not qualify for the deduction.
Primary agriculture includes farming in all its branches, including the cultivation and tillage of the soil, dairying, the production, cultivation, growing and harvesting of any agricultural or horticultural commodities and the raising of livestock, bees, fur-bearing animals or poultry.
Secondary agriculture includes all practices, including forestry or lumbering operations, performed by a farmer or on a farm, and as an incident to or in conjunction with such farming operations. For example, a farm’s activities of cutting or freezing its own fruits, vegetables and meat (i.e., those produced or raised by the farmer or on its farm), without adding any ingredients may be classified as secondary agriculture.
Employment that is not within the scope of primary or secondary agriculture is not excluded (i.e., packing or processing produce from other farms). Please reference DOL Fact Sheet #12 for more specifics.
For more information about key changes from OBBBA, please visit this article on the Brown Plus Blog.
For more guidance on overtime reporting under OBBBA, please contact your Brown Plus advisor today!