Hi, BisHeat and Marriane.

We appreciate you for reaching out and sharing your concerns regarding the new Qualified Overtime feature in QuickBooks Desktop (QBDT) Payroll. I’m here to help provide guidance and ensure your payroll processes run smoothly.

To start, please ensure that your QBDT version and the payroll tax table are updated to the latest release before running your payroll with the new qualified overtime.

Once it's updated, you can then proceed with processing your payroll normally in single-user mode.

For Marianne’s case, the current setup categorizes all overtime over 40 hours/week as Qualified Overtime, which differs from your company’s policy of paying overtime after 8 hours/day or 40 hours/week. Federal guidelines only recognize weekly overtime exceeding 40 hours as Qualified Overtime eligible for tax deductions, while daily overtime falls under Company Overtime and isn’t tax-deductible.

Please refer to this article for more details about how the new Qualified Overtime affects QuickBooks Payroll: Impact of the No Tax on Overtime provision to QuickBooks Payroll.

To properly correct the setup, we recommend consulting an accounting professional to ensure compliance with IRS guidelines and accurate tracking of Qualified Overtime. They can tailor your payroll system to align with federal rules and your company’s policy, minimizing audit risks and ensuring proper reporting.

Let us know if you have further concerns.

Yes our payroll process showed up with Warning and only processes part of our employees and now won’t process the rest.

In all of the information I can find about setting up the new Qualified Overtime Tracking payroll item, no one addressed how to fill out the "default rate and time limit" section of the setup.  What rate do I enter here?  The 1.5% overtime rate which the FLSA requires if that is what we use in our state?

Hi Julie,

Thank you for reaching out here in QuickBooks Community. I understand how confusing the setup process can feel, especially when some sections aren't clearly explained. Let me help clarify how to set it up.

In the Default Rate and Time Limit setup section, enter 0.00 for both the default rate and limit. This is important because the employee’s qualified overtime rate is calculated manually when running payroll.

If the employee’s regular overtime rate (OT) is time-and-a-half (1.5x), you'll have to divide that (found at the top of the paycheck under earnings) by three. The resulting number will be their half-time rate, which you'll enter in the qualified OT tracking item.

On the other hand, if it's double-time, divide the regular OT rate by four. Once you have the calculation, enter the overtime hours worked next to the calculated rate. The number of hours in the qualified OT should match the regular OT under earnings.

I hope this explanation helps you confidently complete the setup for your Qualified Overtime Tracking payroll item. If you have any additional questions or need help with other parts of your payroll setup, don’t hesitate to reach out. We’re always here to support you! 

Yes, I have an issue with the Qualified OT Tracking.  Thank goodness it is for 2026 and not 2025.  First, it is not a company contribution.  Second, it does not work or make sense.  Waiting for an update.  I do not understand why QB is making something difficult that should be easy.  If they read the IRS rules, it should have been setup to coincide with their rules.  If not, why do it at all this early?  Clearly, the 2026 W2's are going to be tweaked along this year.  QuickBooks already allows you to track overtime with hours and wages.  What is the problem.  This is just one more frustrating software issue.  Some people prefer the desktop version of Enterprise for business reasons.  The cloud version is not where it needs to be to accommodate various businesses. 

The Qualified OT Tracking is not a company contribution. 

I am trying to process payroll - In single user.  I opted for QB to calculate my Qualified OT Automatically and it worked on one employee but not another.  What would cause this? 

Hi there, Keith. This could be due to the employee's overtime setup.
 

QuickBooks will only calculate overtime automatically if an overtime payroll item is assigned to the employee’s profile. Without this specific payroll item linked, QuickBooks cannot recognize or calculate the employee's overtime hours.
 

To resolve this, open the employee’s profile and review their payroll setup. Check the list of assigned payroll items and confirm that an overtime pay item has been added. If it’s missing, add the appropriate overtime payroll item and ensure it is set up with the correct Qualified OT for standard rates (1.5x or 2x hourly rate).

If you have additional questions, feel free to leave a comment below.