Thanks for following along and sharing your concerns, @lbacutting.

Choosing the setup as quantity or hours is essentially up to you. I recommend consulting with your accounting professional to decide which way works best for your company. If you don't have an accountant, don't sweat it. You can find one here in our Resource Center. 

However, we typically see our users choose the hours setup. This ensures that the system correctly identifies time-based labor and tracks the specific "half-time" premium portion required for 2026 reporting. The Qualified Overtime Tracking item is designed to calculate and report only on overtime hours that meet federal FLSA standards (typically any hours worked over 40 in a week). 

It doesn't automatically include all hours worked; however, how it works depends on your initial setup choices. For example:

• Automatic Calculation: If you selected "Yes" during the Qualified Overtime Tracking setup wizard (you only pay overtime after 40 hours a week), QuickBooks will automatically pull the qualified amount into the tracking item when you run payroll.
• Manual Entry Required: If you selected "No", QuickBooks cannot automatically determine which hours are qualified under federal law. You must manually calculate and enter the qualified hours and the half-time rate on each paycheck.

For more information about using the Qualified Overtime Tracking feature, check out: Impact of the No Tax on Overtime provision to QuickBooks Payroll.

Please let me know if there is anything else I can assist you with. Just hit the Reply button below. Have a good one! 

This is the first payroll that I have had overtime for an employee.  I am wondering why it made a payroll liability does that just clear out at the end of the year?

Hello there, Erikson. When overtime wages are paid, employee-related taxes increase because these are based on total gross wages. QuickBooks tracks these amounts as payroll liabilities representing what you owe to the tax agencies.

To clarify, payroll liabilities won’t clear out automatically at year-end. They stay in your books until you manually pay them either through QuickBooks or based on your regular tax payment schedule.

You can revisit this thread if you have follow-up questions.

What you are saying in your response leads me to believe 1- either you did not read the thread of posts correctly or 2- you are saying that the company is now going to have to pay the taxes that the employees are getting benefits of being able to reduce their taxes by? I have not seen anything that clarifies that the companies are going to be responsible for making up the taxes that the employees are getting to reduce from their own taxes. The company already pays the taxes that are accrued for the overtime their employees work. This is not going to set well with companies if they are expected to pay the overtime taxes twice, so will you kindly be a bit more explicit on what your response is saying.

That particular change will only occur when you do a full QuickBooks update, not just the payroll update. I ran the payroll update 3 times and then ran the QuickBooks update before I was finally able to see that choice ability. 

If your QOT is showing up in your liabilities in QB desktop go to Employees tab> Manage payroll items> Edit payroll items.

Select Qualified overtime.

1: Name used on paychecks and reports:  No Checkmarks on 'Track expenses by job' or 'Payroll item is inactive'.  NEXT

2: Agency for company paid liability:  No name or number of agency, select 'Payroll liabilities' for BOTH expense and liability account.  NEXT - Warning window, select yes

3: Tax tracking type:  Select 'Qualified overtime tracking'.  NEXT

4: Taxes:  No checkmarks on anything.  NEXT

5: Calculate based on quantity:  Check mark: 'Calculate based on quantity'.  NEXT

6: Default rate and limit:  0.00  - Annual - restart each year... FINISH

Hello  wkerikson, overtime is subject to payroll taxes like regular hours. Please note the thread for QOT ( Qualified Overtime) is a very different issue

Not sure, but here is a screenshot for references

Facing another issue, I do payroll by downloading data from offsite clock. Due to some reasons, either the QB Plug in app or the QB Desktop segregates the overtime into two lines. I understand this issue had nothing to do with QOT. But this led me to manual entry of hours under earnings on paycheck details. My Findings are

• IF the very first Line under Earnings is Regular Hours & the second line is OT (QOT , Calculator works fine.
• IF the very first Line under Earnings is OT & the second line is Regular hours (QOT Calculator does not Work Correctly.
• And if I only try to pay Overtime, the calculator does not work. To make this work, I leave the first line Regular Hrs to Zero, and enter the hours for OT, than QOT calculations work

That means, Qbooks Desktop only recognize to calculate QOT , if the first line is Regular Hrs Hoping this will change upon the “Updates”

Thanks for following up with the Community, jitu1049. I appreciate your detailed information, screenshot, and PDF.

It sounds like you've identified that the payroll calculator requires 'Regular Pay' to be the primary anchor on the earnings list to trigger the calculations correctly. Currently, QuickBooks Desktop processes these lines sequentially.

I can certainly understand how future updates to this functionality could be useful and have submitted a suggestion about it as of today.

You can also submit your own while using QuickBooks.

Here's how:
 

1. In the top menu bar, go to Help, then Send Feedback Online.
2. Choose Product Suggestion.
3. Enter your suggestion.
4. Select Send Feedback.

Your feedback's definitely valuable to Intuit. It will be reviewed by our Product Development team and considered in future updates. You can review the Product Updates page for recent news about your product.

I'll be here to help if there's any questions. Have a wonderful Thursday!

Done 

Basically, I don't think Quickbboks desktop is working at all correctly for Qualified Overtime. 

Here is an example.  An employee has 1 hour of overtime. She is regularly paid $20 per hour. Her overtime of time and 1/2 would be 30 for that hour.  If I enter 40 hours at $20 per hour, and 1 hour at $30 per hour, then her time and pay are calculated correctly, however, I believe she should not be paying SS and Medicare taxes on that $10, and we should not be paying matching on that $10, but we are.  The Qualified OT tracks as a company paid item, but it does not affect those payroll taxes at all, it is just tracking it. So I believe we will be overpaying our company matching taxes, and the employee with be overpaying her deductions. 

I then tried to set it up with 2 payroll items. One extra hour at the regular wage of $20, and then 1 hour at the 1/2 time wage of $10.  However this had the net effect of calculating her as actually working 42 hours that week which is incorrect, and then makes her vacation and sick hours accrue incorrectly, and also it still did not calculate the payroll taxes correctly. 

So I believe this is a bug in their system and they need to fix the payroll tax withholding capabilities of Qualified OT. 

I guess we will find out when we go to file our 941's?! 

I appreciate you providing detailed information about the challenges you're facing with Qualified Overtime in QuickBooks Desktop, eljebooks. I understand that payroll calculations can be confusing, and I’m here to address the points you’ve raised.     
 

While it may seem like a bug, this is not a system error. QuickBooks is designed to strictly adhere to federal tax regulations, which require Social Security and Medicare taxes to be applied to all gross taxable wages, including overtime pay. These calculations are accurate and ensure compliance with Form 941 filings. The gross taxable wages reflected in your payroll reports will align with IRS requirements, so you can feel confident about your upcoming filings.
    

You don’t have to wait until filing Form 941 to confirm accuracy, you can calculate manually if needed for verification. Qualified OT Tracking (QOT) is designed to track the portion of an employee’s wages that comes from overtime premiums. Social Security and Medicare taxes are always calculated on the total gross taxable wages, which include regular pay and overtime. Under federal tax regulations, all overtime wages, including the premium ($10/hour), are treated as taxable and must have deductions applied. Employees can use these taxable amounts to get a tax break at the end of the year if they are eligible.
 

In your first calculation, the employee worked 40 regular hours at $20/hour and 1 overtime hour at $30/hour (time-and-a-half). This setup calculates everything correctly in QuickBooks. The gross pay comes out to $830, and Social Security (6.2%) and Medicare (1.45%) taxes are calculated based on the total gross taxable wages of $830. That's why it shows the correct calculation of the employee's pay.

The example calculation:

• Regular Pay: 40 hours × $20/hour = $800.

• Overtime Pay: 1 hour × $30/hour = $30.

• Total Gross Pay: $800 + $30 = $830.
QuickBooks calculates SS and Medicare base on total gross pay:
• Social Security: $830 × 6.2% = $51.46.
• Medicare: $830 × 1.45% = $12.04.

This means that your company’s matching taxes and the employee’s deductions are correctly calculated based on the full overtime pay of $30/hour (time-and-a-half). There hasn’t been any overpayment, and QuickBooks ensures compliance with federal laws. While QOT tracking separates the overtime premium for reporting purposes, it cannot override tax calculations, as this is required by IRS standards.

The second calculation seems like it should work, but QuickBooks ends up counting the overtime as two separate hours instead of one. This makes it show 42 total hours worked instead of the correct 41 hours (40 regular + 1 overtime). Because of this, the hours worked are inflated, which throws off vacation and sick leave calculations. Even if you split the overtime into two items (1 hour at $20 and 1 hour at $10), QuickBooks still calculates Social Security and Medicare taxes based on the full gross pay, so the taxes don’t change.

To avoid inflated hours and inaccurate accruals, I recommend using the first setup: 40 hours at $20/hour and 1 hour at $30/hour. This approach ensures accurate hours worked, proper vacation and sick accruals, and compliance with payroll tax laws.
   

You can check this article to know more about Qualified OT Tracking: Impact of the No Tax on Overtime provision to QuickBooks Payroll

If you think the overtime premium ($10/hour) shouldn’t be taxed, I recommend consulting a tax professional to ensure everything complies with federal guidelines. 
  
Please leave us a response if you have other questions or concerns.

Janiqueca T - Is there a reason why Qualified OT is automatically calculating in QB Online, but not Desktop. This seems rather antiquated. Is there a timeline?

- Dawn

Yes - set both to the same - that will zero out the account.

Here's a great video - https://www.youtube.com/watch?v=xh9ZUOEZeGs