Originally published on 11/17/2025
This service bulletin applies to all customers using Avail's Payroll solution.
What's the Issue?
The One Big Beautiful Bill Act affects the reporting and recording of Overtime Wages. Beginning with Tax Reporting Year 2025, taxpayers can deduct certain eligible overtime wages. Please refer to the IRS for additional details: One Big Beautiful Bill provisions.
Who's affected?
Any ETMS Payroll User.
What do I need to do?
For 2025 Tax Reporting - Agencies will need to use "any reasonable method" specified by the Treasury Department to estimate the amount of qualified overtime for 2025. This is not being reported to the IRS for 2025, but does need to be reported to the employees. Avail will be providing a program update to allow for this information to be included on the W2.
For 2026 Tax Reporting - Agencies will need to determine what Pay Codes for Overtime Wages are being used for the eligible overtime wages. Eligible overtime wages are the half portion that is required under Section 7 of the federal Fair Labor Standards Act (FLSA). Overtime not required by FLSA, such as overtime required by state laws, a collective bargaining agreement, or paid voluntarily by the agency, is not eligible to be deducted and therefore should not be reported. This generally means overtime is required for actual hours worked over 40 hrs a week and excludes vacation, sick, or holiday time.
Avail recommends using the Automatic Overtime Calculation for this to be calculated, but due to specific agency/state policies regarding overtime, this may be understated, and Time Entry Pay Codes will need to be manually adjusted each pay period in certain scenarios to ensure proper reporting at the end of the tax year. The automatic overtime calculation ensures that the employees get the highest overtime.
Some examples:
- An employee works four 10hr days totaling 40 hrs a week and is entitled to overtime over 8 hrs a day based on a CBA. This employee gets 8 hrs of overtime pay, and it is not eligible to be reported and deducted for the employee's taxes. During the Automatic Overtime Calculation, no overtime is given based on the weekly over 40 hrs, but receives the daily overtime pay.
- An employee works four 10 hr days and 4 hrs on the fifth day, totaling 44 hrs a week, and is entitled to overtime over 8 hrs a day based on a CBA. This employee is going to get 8 hrs of overtime pay, and only 4 hrs of that are eligible to be reported and deducted on the employee's taxes. During the Automatic Overtime Calculation, no overtime is given based on the weekly over 40 hrs, but all 8 hrs will be coded through the daily overtime pay code. This is where a manual adjustment to the time entry is needed so that this employee is given 4 hrs of daily and 4 hrs of weekly overtime.
- An employee works six 9 hr days, totaling 54 hrs a week, and is entitled to overtime over 8 hrs a day based on a CBA. This employee is going to get 14 hrs of overtime pay, and all of that is eligible to be reported and deducted on the employee's taxes. During the Automatic Overtime Calculation, 8 hrs of overtime will be given based on weekly over 40 hrs and, the other 6 will be coded through the daily overtime pay code. This is where a manual adjustment to the time entry is needed so that this employee is given 14 hrs of weekly overtime.
If your agency does not pay any additional overtime beyond what is required by FLSA, then you are in luck! No additional pay codes should be needed, and you will just need to follow the instructions for reporting on the W2 and these will be published later once program changes are finalized.
Avail can update the Daily and Weekly Overtime Pay Codes on each employee master based on the department. Employees marked Exempt, and those who currently do not have daily/weekly pay codes set up will be ignored. The pay codes will need to be set up by the agency and provide Avail with a spreadsheet with the information in the following format. Column A - Department, Column B - Daily Overtime Pay Code, Column C - Weekly Overtime Pay Code. This information will need to be given to Avail by Tuesday, December 2nd, will ensure that the changes will be made before the first payroll of 2026.
Additional setup for the pay codes for overtime wages that need to be reported will need to be done in the Employee Tax Reporting Form. Once the program updates are finalized, additional instructions on this setup will be published on the Help Center.
How do I request assistance?
If your agency would like to discuss specifics with Avail, please reach out to Britta Phillips at bphillips@availtec.com to set up a meeting to discuss.
Thanks for partnering with Avail. We look forward to better serving you!