Employer Guidance: 2025 Overtime-Premium Reporting & IRS Relief
As tax year 2025 marks a transition for the overtime premium deduction under the One Big Beautiful Bill Act (OBBBA), please be aware of the following updates and feel free to share with your employees and payroll staff:
Key IRS Guidance for 2025
Employer Reporting Requirements
- Employers are not required to separately report overtime premiums on Form W-2 or other statements for year 2025 only.
- This transition rule is outlined in IRS Notice 2025-62 and Notice 2025-69. Noncompliance will not result in IRS penalties for 2025.
Resources:
- IRS Notice 2025-62 https://www.irs.gov/pub/irs-drop/n-25-62.pdf
- IRS Notice 2025-69 https://www.irs.gov/pub/irs-drop/n-25-69.pdf
Employees may still claim the overtime premium deduction using documentation such as:
- Their last pay stub of the year with year-to-date overtime earnings
- Or, a statement or reconstructed record from you to isolate the FLSA-required overtime premium (the “half-time” portion).
IRS guidance confirms that if your payroll system shows total pay, employees can use a “reasonable method” (for example, one-third of “time-and-a-half”) to compute deductible premium.
Overtime Premium Calculation
- Divide total overtime pay by 3 to estimate the overtime premium (for overtime that is paid at 1 ½ times the normal pay rate).
- Example:
- Overtime wages = $15,000
- Overtime premium = $5,000 (15,000 ÷ 3)
Looking Ahead to 2026 and Forward
- Beginning in 2026, employers will be required to report overtime premium information and could be penalized for noncompliance.
- The IRS will update Form W-2, and payroll software providers are expected to implement changes for accurate reporting.
Optional Employer Actions for 2025
- Remind employees to keep their final 2025 pay stub with year-to-date data.
- Voluntarily issue a statement to your employees showing overtime premiums to aid deduction.
- Offer to print pay stubs for their records.
Though none of these actions are required in 2025, these steps help employees accurately claim the deduction, if eligible, and reduce questions.
Why This Matters Now
- IRS is offering penalty relief for 2025 due to transition challenges. [irs.gov]
- Forms W-2, 1099-NEC/MISC will not be updated for tips/overtime reporting until 2026. [journalofa…ntancy.com]
- Employees are responsible for claiming the potential deduction—your support can minimize confusion and additional inquiries.
Here are some helpful templates that you may use to notify and assist your employees.
We recommend encouraging employees to consult their tax preparer or accountant for guidance on claiming the overtime premium deduction.
Sincerely,
Your PBG Advisors Team