New Qualified Overtime Compensation Tracking

Hi there, CMeGo.

QuickBooks Desktop can track standard overtime pay, but there’s no official confirmation yet on updates for Qualified Overtime Compensation under the new requirements.

As a workaround, you can manually set up the payroll item, update your program and tax tables, assign the item to employees, and enter qualified overtime amounts.

Here’s how to update QuickBooks Desktop and your Payroll Tax Table:

1. Open Help, select Update QuickBooks Desktop, choose Update Now, and install updates.
2. Go to Employees, click Get Payroll Updates, and download the latest tax table.

Then create the “Qualified Overtime Tracking” payroll item. If it isn’t available automatically, set it up manually:

1. Go to Lists, then Payroll Item List.
2. Click Payroll Item and then New.
3. Select Custom Setup, then click Next.
4. Choose Other Earnings as the type, then click Next.
5. Name the item (e.g., “Qualified Overtime Tracking”) to distinguish it from regular overtime.
6. Assign expense and liability accounts you use for payroll tracking.
7. Click Finish to save the item.

After creating the payroll, assign the payroll item to employees eligible for Qualified Overtime Compensation:

1. Go to Employees, then Employee Center.
2. Double-click an employee’s name to edit their profile.
3. Go to the Payroll Info tab.
4. Add the new payroll item under Additional Earnings.
5. Click OK to save the changes.

Since Qualified Overtime Compensation for 2026 is pending, manually calculate and enter the qualified overtime amounts:

1. Track regular overtime hours.
2. Pay employees using Overtime 1.5x or Double Time.
3. Calculate the Qualified Portion only the FLSA-required half-time amount.
4. Exclude amounts above FLSA minimums.
5. Enter the Qualified Overtime amount under the Qualified Overtime Tracking item during payroll.

Use payroll reports like Payroll Summary to track Qualified Overtime payments, and keep your tax tables updated while monitoring QuickBooks for new updates.

Feel free to reply below if you have further questions.

Thank you for taking the time to follow the steps provided by my colleagues on how to manually add the qualified overtime amounts. Allow me to guide you through setting it up effectively.

Regarding the Tax Tracking Type, since there isn’t a specific type for this item yet, we recommend consulting with an accountant to determine the best tax type based on your business needs. Their advice will help ensure accurate tracking and compliance.

In the Calculate based on quantity section:

• Quantity: Use this option for payroll items measured in units other than hours, such as days, weeks, or items produced.
• Hours: Choose this for items calculated based on time worked, like regular hourly wages, overtime, sick pay, or vacation pay.
• Neither: Select this option for payroll items with values that are fixed amounts or percentages that do not depend on input quantities or hours.

When deciding between Gross vs. Net, note the following:

• Gross: The tax or adjustment will be added to the employee’s gross pay.
• Net: The tax or adjustment will be applied to the employee’s net pay.

For Default Rates, if you want the rates to be automatically applied to future employees, ensure you set them in advance. If you prefer manual input, leave the field blank and enter rates for each employee as needed.

Additionally, you can also apply this setup to your employee’s wage rate since the new Qualified Overtime Compensation tracking has not received official confirmation yet.

Finally, to ensure the setup is optimized for your business, we recommend consulting an accountant for tailored advice.

If you still need further assistance, please click the Reply button below.

Qualified OT Tracking is set up under Company Contributions per update.  

Edit payroll item: 

Liabliity Account Payroll Liablities

Expense account: Payroll Expense:wages 

Tax Tracking" Qualified overtime tracking

Taxes (select nothing)

Calculate based on hours 

Rate is 1.5

No limit 

I hope someone from QB is reviewing these posts.  In addition to the different issues brought up in this post, there are 2 more issues that have not been mentioned yet.

1.  The directions being given do not seem to cover double time.  I don't see any way that the one Pay Item is going to work for OT and DT

2. The "no tax on overtime" law is based on the FLSA week.  In states like California, where daily overtime is a thing, the current methods are not going to calculate the amount correctly if the person has daily overtime but did not have 40 hours of regular time for the week.

I hope this is going to be addressed in the coming update.

Small payroll here, but I have found that if my employee only has 2 Earn Codes (i.e. Hourly Regular and Hourly OT), then the Qualified OT Tracking computes perfectly on it's own. I did change the pay item setup to calculate based on HOURS and I left the rate and limit black. Also, I DID NOT have to add the pay item under each individual employee "Payroll Info: Additions, Deductions and Company Contributions."

I found that if any of my employees had more than one "regular hourly" earn code (i.e. Hourly Regular, Hourly Maintenance and Hourly OT), then their OT would not compute in the Qualified OT Tracking.

Hello there, @SD075.

Since this is purely a tracking item, we recommend selecting the same chart of accounts account in the Agency for the company-paid liability screen. This ensures that there is no impact on your chart of accounts. For instance, you can use the Payroll Liabilities account for both the Liability account and the Expense account sections. 

That said, I suggest contacting your accountant for further guidance on setting this up.

If you have any other concerns, please click Reply.

In the setup, should the calculation be set to quantity or hours?  If hours, is it able to calculate only on overtime, or will it be all hours?

You do not need to set up two separate tracking items or accounts for overtime and double time. In fact, setting up multiple tracking items will disable QuickBooks' automatic calculations.

Because the new Qualified Overtime Tracking is for tracking purposes only, we recommend you select the same account on the Agency for company-paid liability screen. By selecting the same account, such as your Payroll Expenses account, in both the Liability and Expense account sections, you guarantee that the overall financial impact on your chart of accounts remains zero.

When you set the payroll tracking items, you only need to create a single company contribution payroll item and choose the Qualified Overtime Tracking tax tracking type.

• If you use multipliers other than 1.5 on the embedded Overtime Pay item, such as Double Time or 1.75x, QuickBooks will automatically calculate the Qualified Overtime amount based on IRS rules.
• If you add multiple Qualified Overtime Tracking payroll items to a paycheck, or if you add multiple Overtime Pay items with different rates, QuickBooks will not calculate the tracking amount automatically. In that situation, you will need to manually adjust the amounts when you run payroll.

For a deeper dive into how the calculations work and what to expect during your payroll runs, you can review these articles:

• Impact of the No Tax on Overtime provision to Intuit QuickBooks Workforce or QuickBooks Desktop Payroll
• Details on the One Big Beautiful Bill Act and how it affects payroll

Feel free to reply if you have any further questions.

After reading this thread on Qualified OT Tracking, can someone from Intuit give a step-by-step instruction to enter into the payroll item Qualified OT Tracking?  Mine seem to be working in January and then periodically works.  It is not consistent.  Basically, either every payroll or at the end of the year a manual calculation will have to be done so the W2 iis correct?  I don't understand why QuickBooks does not have this fixed half way through the year.  What are we paying for then?  Please help.  Thank you.