As part of our commitment to keeping you informed and fully supported, we want to update you on important upcoming changes related to the One Big Beautiful Bill Act (OBBBA)—specifically the Qualified Overtime and Qualified Tips deductions available to employees beginning with the 2025 tax year.
These new rules introduce additional reporting requirements for employers, and we want to assure you that dynamo HCM and our payroll platform partner are already implementing the tools and system enhancements needed to support full reporting and compliance—both for your business and for your employees.
Below is an overview of what is coming and what you can expect from us.
1. 2025 Estimated Overtime Premium Reporting (End of Year)
We are making available a new automated reporting process for tax year 2025 to help employers provide employees with the information they need to determine whether they qualify for the OBBBA’s Qualified Overtime Compensation deduction.
What You Will Receive
Beginning late November and early December 2025, two reports will be generated for each employer:
Employer-Level Report (Excel)
Includes totals for:
- Employee tips
- Overtime pay
- Estimated overtime premium
Release: Scheduled for November 21, 2025
Employee-Level Report (PDF)
Includes employee-specific:
- Overtime pay
- Estimated overtime premium
- Tips (if applicable)
Release: Scheduled for December 5, 2025
These reports will also be included in your Year-End Output and can be run on demand.
2. W-2 Reporting for 2025
During year-end processing:
- A memo earning will be created to capture the employee’s estimated overtime premium.
- This value will automatically appear in Box 14 of the 2025 W-2 with the label “Est OT Premium.”
Important: Opt-Out Available
If you prefer to exclude this amount from your W-2s, let us know. We can block the setting for your account.
Calculation Method
The estimated overtime premium will be calculated using a reasonable method of calculation.
3. Preparing for 2026: Real-Time Overtime Premium Tracking
For tax year 2026, we will shift from retrospective estimation to real-time calculation and storage of the estimated overtime premium on each paycheck.
What this means for you:
- The system will automatically evaluate overtime hours weekly (or by pay period if weekly breakdown is unavailable).
- Premium amounts will be calculated using approved formulas for:
- Standard overtime
- Blended rates
- Tipped overtime
- These amounts are expected to appear on the 2026 W-2 in Box 12 with code TT (pending IRS confirmation).
4. 2026 Tips Reporting (Preparation Required Now)
While the IRS and Treasury finalize guidance, current expectations suggest that voluntary tips will need to be reported on the W-2 in Box 12 using a new dedicated code.
What you should do now:
- Ensure you have one earnings code specifically for voluntary tips
- Use a separate code for mandatory service charges or automatic gratuities
If you need assistance reviewing or restructuring earnings codes, our team can support you.
5. Disclaimers and What Employees Must Know
All 2025 employer and employee reports will include an IRS-aligned disclaimer explaining:
- Overtime premium amounts are estimates
- Employees are responsible for reviewing IRS guidance
- Eligibility depends on multiple factors, including:
- Regular rate calculations
- Inclusion of qualified tips
- Income limitations
- Future Treasury guidance
Employees should be advised to consult IRS instructions or a tax professional before claiming any deduction.
How dynamo HCM Will Support You
Over the coming months, we will:
- Configure and validate all overtime and tips reporting features
- Review earnings codes for proper classification
- Ensure W-2 settings are correct
- Provide step-by-step instructions once guidance is finalized
- Support employee questions and understanding
- Monitor OBBBA updates and notify you of changes
Our goal is to make this transition as smooth as possible for you and your team.
Questions or Need Assistance?
We’re here to help guide you through these new requirements and ensure you’re supported every step of the way. Contact Us
