Qualified Overtime Tracking

The tax deductible Overtime Premium amount is not the full amount of OT pay. Only the OT portion is tax deductible. If your OT rate is 1.5 x regular pay rate, the Qualified OT Premium is 1/3 of the total OT Pay. If your OT rate is 2 × regular rate, the Qualified OT Premium rate is 1/2 total OT pay.

Therefore, you should add the Qualified OT tracker so that the calculation appears on a separate line; It makes things easier for the tax preparer.

Sorry, there was a typo in my message above. If your OT rate is 2 × regular rate, the Qualified OT Premium rate is 1/4 total OT pay.

Hello there, @Hrstar.

In QuickBooks Online (QBO), adding the Qualified Overtime Tracking pay type can offer key advantages based on the platform’s payroll functionalities. Even if you’re already tracking standard overtime, having a dedicated pay type for Qualified Overtime can enhance payroll efficiency, compliance, and reporting. Here’s a clearer and improved explanation of the benefits:

Some laws and industry standards require tracking Qualified Overtime separately from regular overtime to ensure accurate reporting and compliance with regulations. Proper classification helps meet legal obligations and follow specific rules or agreements.

Tracking Qualified Overtime separately makes record-keeping clearer and more organized, helping with audits, financial planning, and internal reporting needs.

Simplifying payroll is easier with separate tracking for qualified overtime, as it enables efficient management of special calculations such as tax benefits, subsidies, or other incentives tied to these specific hours. This ensures accuracy and reduces the risk of manual errors in processing.

Separately tracking it ensures your payroll system is flexible and ready to adapt to future changes, such as distinguishing between qualified and non-qualified overtime, implementing new policies, or meeting evolving regulatory requirements. Even if all overtime is currently qualified, this setup prepares your system for potential updates without disrupting operations.

Adding the Qualified Overtime Tracking pay type in QuickBooks Online ensures compliance, simplifies payroll, improves transparency, and reduces errors, creating a stronger and more efficient payroll system.

Don't hesitate to comment below if you have additional questions about tracking Quality Overtime in QuickBooks Online.

After setting up Qualified Overtime Tracking it is being tax tracked showing liabilities due, I've tried fixing the issue with no result.

Hi there, PL2026. I'd be happy to help you with Qualified Overtime Tracking (QOT) in QuickBooks Online(QBO).

Before anything else, I want to know more about how you've set up the qualified overtime pay for your employees.

Did you create a custom item for company overtime policies or state laws that differ from the Fair Labor Standards Act (FLSA)? Or did you use the QuickBooks embedded QOT item? This information would help us provide a tailored solution.

Moving on, please ensure you're utilizing the official Qualified Overtime Tracking in each qualified employee's profile.

Here's how:

1. Log in to your QBO Payroll account and go to All Apps.
2. Select Payroll, and then Employees.
3. Choose the qualified employee(s).
4. Navigate to the Additional pay types menu.
5. Pick Qualified OT Tracking under the Pay Type drop-down arrow.

If you haven't filed taxes yet, void the affected paychecks using the correct tracking item, then create a paycheck with overtime pay.

Please don't hesitate to comment below if you need further assistance.

Why is this not put into a payroll update?

Hello, @customer.

I want to make sure we get this right for you. I noticed you mentioned a payroll update. Could you perhaps mean you're currently using QuickBooks Desktop (QBDT) Payroll?

For newly added employees in QuickBooks Online (QBO), the Qualified Overtime Tracking payroll item is automatically applied when Overtime Pay is enabled. If this doesn’t happen, you will need to manually add the Qualified Overtime Tracking pay type for each employee. Here’s how to do it:  

1. Click on the All Apps menu, go to Payroll, and select Employees.
2. Choose the employee you want to update.
3. Scroll down to find Additional Pay Types.
4. Click Add and select Qualified OT Tracking from the Pay Types dropdown.
5. Then, click Save.  

If you are using QuickBooks Desktop (QBDT), be sure to update it to the latest version to access this functionality. After updating, the Payroll Setup Wizard will help you add the Qualified Overtime Tracking payroll item when you first run payroll or open Payroll Setup. If the wizard doesn’t appear, follow the steps outlined in Set Up and Manage Company Contributions to create a company contribution payroll item and select the tax-tracking type Qualified Overtime Tracking.  

You can also refer to this article on how to add Qualified OT Tracking for both QBO and QBDT: Impact of the No Tax on Overtime provision to QuickBooks Payroll.

Let us know if you have further questions. We'll be right here to help you anytime.

I have a question regarding the posting of these items. I let Quickbooks add the payroll item through an update. I then added the Qualified OT tracking to my employees profile.  It is tracking the qualified overtime on my employees paystub but, it is showing up as a payroll liability as if I owe it to someone. I tried to chat with a QB representative about this and he was unable to help me. QB added the payroll item as a company deduction with the liability and expense account posting to a liability account. Does anyone have this issue? Thank you in advance for your time.  

Hi, Sue. 

It’s important to note that because the Qualified Overtime (OT) tracking item is purely for tracking purposes, we recommend that you select the same Chart of Accounts account on the “Agency for company-paid liability” screen to ensure the impact on your Chart of Accounts remains zero. For example, you can select the "Payroll Liabilities" account in both the Liability and Expense account sections.

For additional information, please refer to this article: Impact of the No Tax on Overtime provision to QuickBooks Payroll.

If you have additional questions or need assistance with QuickBooks, please don’t hesitate to reach out.