Currently in Draft - Once IRS publishes final reporting requirements, this will be removed. For the 2026 tax reporting year and later, eligible overtime wages will be reported in Box 12 of the employee’s W-2.
Two methods are available for reporting qualified overtime wages in Box 12. Select the method that best applies to your agency:
- Method A: Automatic Calculation by Pay Code for FLSA Overtime: For agencies that pay overtime based solely on FLSA or can separate overtime by pay codes.
- Method B: Manual Entry for Complex Overtime Policies: For agencies with additional overtime requirements due to state laws, collective bargaining agreements (CBA), or agency-specific policies.
TIP: Avail recommends that, beginning in 2026, the FLSA Eligible OT Wages & Hours Report be run with each pay period. Doing so helps identify and correct any setup errors before year-end. This is particularly important for agencies planning to use Method B for reporting.
Method A: Automatic Calculation by Pay Code for FLSA Overtime
- Navigate to Payroll > Tax Reporting > Employee Tax Reporting.
- Click Setup Pay Codes.
- From the dropdown, select an overtime pay code that complies with FLSA overtime.
- Choose 12 from the W-2 Box # dropdown.
- Click the green checkmark next to the W-2 Description dropdown.
- Add the following:
- Code: TT
- Value: QUALIFIED OVERTIME COMPENSATION
- Click Close Form.
- Select TT from the dropdown and repeat for all applicable overtime pay codes.
- Verify Setup Pay Codes and Setup W-2 Boxes for Boxes 12–14 before building tax data.
- After building tax data, confirm eligible overtime by selecting 12. See Instructions. The popup will display all Box 12 details for the printed W-2s.
NOTE: Only one pay code will appear in Box 12, but the system totals all wages from the entered pay codes per employee.
Method B: Manual Entry for Complex Overtime Policies
Prerequisite: Ensure Pay Code Setup and Employee Payroll Data are correctly configured. Refer to FLSA Eligible OT Wages Hours Report Details and Setup.
- Run the FLSA Eligible OT Hours Wages (Excel) report:
- Navigate to Payroll > Custom Legacy Payroll Menu > Custom Payroll Menu
- Select Payroll – User Reports Standard > FN PR Reports Page 2 > FPR15.
- Select 14 FLSA Eligible OT Hours Wages (Excel).
- Enter the first day of the payroll year and choose a folder to save the report.
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Open the report and review for NULL values.
NOTE: If the Pay Rate is NULL, this indicates that the employee was FLSA eligible for overtime but did not have any overtime pay codes during that week.- If Pay Rate is NULL, verify employee overtime eligibility and pay code setup.
- Correct any pay rates and calculate eligible wages:
Eligible Hours × Pay Rate × 0.5.
- Add subtotals for each employee to determine total eligible FLSA overtime wages.
- Navigate to Payroll > Payroll Maintenance > Payroll Setup > Misc Codes (PR)
- Choose W2BoxNo12 from the dropdown.
- Add the following Code and Value:
- Code: TT
- Value: QUALIFIED OVERTIME COMPENSATION
- Close Form and Navigate to Payroll > Tax Reporting > Employee Tax Reporting.
- Complete the tax build after verifying W-2 Box setup for Boxes 12–14 are completed in Setup W2 Boxes.
- Edit W-2 Box 12 for each employee:
- Click Modify Employee. Employees are sorted by Employee Number.
- For each employee listed on the FLSA Eligible OT Wages Hours report repeat the following steps:
- Click 12. See Instructions to open the popup window.
- From the Plan Code dropdown, select TT.
- In the Contrib Year field, enter Payroll Tax Year.
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In the Amount field, enter the Total Eligible FLSA Overtime Wages from the report.
Report Setup Details
To ensure accurate data in the report:
- Employees marked Exempt From Overtime will be excluded.
- Eligible time worked, according to FLSA, requires Pay Codes flagged as FLSA Hours.
- Only employees with more than 40 hours in a 7-day workweek will appear.
- The report includes:
Employee No, Name, Pay Period, Week Dates, FLSA Hours, Pay Rate, Eligible Hours, and Eligible Wages.
For step-by-step instructions on configuring these settings and generating the report, refer to the FLSA Eligible OT Wages & Hours Report: Details and Setup article. It covers:
- How to verify employee overtime status.
- Configuring Pay Codes for FLSA compliance.
- Running the report and reviewing results.
- Investigating issues such as NULL Pay Rates.