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"One Big Beautiful Bill" Act and what it means for 2025 Year-End

Background

The IRS has confirmed that there will be no changes to Form W-2 for the 2025 tax year regarding the new overtime law. Employers are encouraged to provide employees with an approximate calculation of qualified overtime compensation for the 2025 deduction. Because the law took effect retroactively in mid-2025, payroll systems did not capture this data from the start of the year. The IRS has stated that reporting estimated qualified overtime compensation in Box 14 of the 2025 Form W-2 is acceptable, though not mandatory. Further guidance from the Treasury and IRS is anticipated.

If you wish to provide the information to your employees, it is your responsibility to distribute the PDF report.

What is isolved doing for 2025?

  • Automatically calculating an estimated overtime premium for 2025

Calculation Method:
  1. Analyze all previous check detail entries to calculate hours worked using the Hours Worked accumulator.
  2. Identify hours over 40 per week to determine FLSA overtime hours.
  3. Use the formula: (Regular Earnings + (FLSA Overtime Hours × Base Hourly Rate)) ÷ Hours Worked to calculate estimated average overtime rate per hour.
  4. Multiply estimated average overtime rate per hour by 0.5 to determine the Estimated Overtime Premium per Hour.
  5. Multiply the premium per hour by total FLSA overtime hours to calculate the Estimated Overtime Premium reported on Form W-2 and new reports.

  • Displaying the amount on Form W-2, Box 14, as 'Est OT Premium'.

    This is also supported by the reports found in isolved under REPORTING > CLIENT REPORTS.

  • Providing two new reports

    isolved has made available two reports (detailed below).  These reports are can be run on demand from CLIENT REPORTS:

  • Overtime & Tips Export- Employer (excel)

This report will provide a summary of Overtime Premium and Tips for each employee in a spreadsheet format.

  • Overtime & Tips Export: Employee (pdf)

This report includes a page for each employee with overtime, detailing their Overtime Premium and Tips.  This report can be distributed directly to employees.

What should we expect for 2026?

Starting with the first payroll of 2026, isolved is implementing real-time tracking.   The system will calculate and store the overtime premium with each paycheck throughout 2026.

As more information and clarification related to the One Big Beautiful Bill Act comes to light, our team will continue to pass along updates that will impact your business and your people. 

Action Item: Make sure you have appropriate earnings codes set up to track overtime and tips.  Reach out to support if you have questions, need additional earning codes on your time entry grid, or need to make any year-to-date adjustments to properly reflect hours.

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