Employees who receive overtime compensation for hours worked over 40 in a workweek may qualify for a federal income tax deduction under the One Big Beautiful Bill Act.
The deduction applies to the premium portion of qualified overtime compensation. For example, this generally means the “half” portion of time-and-a-half overtime pay that is required under the Fair Labor Standards Act (FLSA).
This deduction applies to tax years 2025 through 2028. For tax year 2025, the IRS is allowing reasonable methods of estimation for reporting qualified overtime compensation.
Beginning in 2026, you will need to enter FLSA overtime hours in Patriot Payroll so Patriot can report the required overtime deduction information on employee W-2s.
For more information, see our blog article, No Tax on Overtime.
How to Mark Overtime as FLSA Overtime
Before you run payroll
If an employee has FLSA overtime hours, use Patriot’s built-in Overtime Hours box when running payroll.
Do not use a custom overtime hour box for FLSA overtime. Custom overtime hour boxes will not trigger the Step 1A reporting page for FLSA overtime.
Go to Payroll > Run a New Payroll.
Select the pay schedule you want to use.
Enter the employee’s hours.
Enter the nonexempt employee’s total hours worked for the pay period.
If the employee worked overtime or double time, enter the number of hours in the built-in Overtime or Double Time boxes.
Click Next.
If you entered hours in the Overtime or Double Time boxes, Patriot will automatically open the FLSA Overtime Designation page in Step 1A.
Enter the employee’s FLSA overtime hours.
For each nonexempt employee, enter the total number of FLSA overtime hours. These hours are used for reporting only. They do not calculate or change the employee’s pay.
Patriot will calculate the premium pay amount, meaning the “half” portion of time-and-a-half overtime pay, and report the amount on the employee’s W-2. You only need to enter the FLSA overtime hours.
Click Continue to review payroll calculations.
Complete Step 2 and Step 3 to approve and finish payroll.
If you use Time & Attendance
If you use Patriot Time & Attendance and sent time cards to payroll, the Federal Overtime Hours will be prefilled based on the employee’s time worked for the pay period.
If you did not send time cards to payroll, you can:
Click Auto-Fill All to copy all paid overtime hours into Federal Overtime Hours
Override the copied hours, if needed
Manually enter the federal overtime hours
If an employee is exempt from FLSA overtime
If an employee is exempt from FLSA overtime, enter 0 hours on the FLSA Overtime Designation page.
Questions about what counts as FLSA overtime
Patriot does not determine whether hours qualify as FLSA overtime. If you have questions about whether specific hours qualify, review Department of Labor guidance or contact your payroll or legal advisor.