Reporting Qualified Overtime on Form W-2

Starting in 2025, the One Big Beautiful Bill Act introduced a new federal income tax deduction for qualified overtime pay. Please discuss the deduction and taxable income with your tax advisor. Because the deduction applies retroactively to January 1, 2025, the IRS allows flexibility during this transition year for employers to report overtime information. The City’s Tyler payroll system has not been configured to automatically calculate and separately report the qualified overtime portion without manual intervention. The IRS issued Notice 2025-69, which clarifies how individual taxpayers can claim the deduction.

For 2025, Human Resources (HR) will provide a report for each employee. For 2025, the information needed to calculate the qualified overtime portion can be found on your December 26, 2025 paycheck, which reflects year-end overtime totals. To calculate the qualified overtime portion for tax purposes, employees may divide the total overtime dollar amount shown on that paycheck by three (3), which represents one-third of the “qualified overtime portion” (the premium portion of time-and-a-half overtime pay).

Employees are encouraged to retain their year-end pay documentation and consult with a personal tax advisor if they have questions about how to claim the deduction on their individual tax return.

Let HR if you have any additional questions.