'No tax on overtime' is the most misunderstood payroll change in years. Employees hear it as withholding-free paychecks. It isn't — it's a deduction the employee claims at filing time, it applies only to the premium half of time-and-a-half, and it comes with caps and phase-outs. What lands on the employer is quieter and harder: track that premium separately all year and report it accurately on the W-2.
This packet gets payroll ready: an orientation on what actually qualifies, a field-mapping table for isolating the 0.5x premium, W-2 readiness steps with your vendor's deadlines, a regular-rate pressure test (because the deduction inherits every flaw in that math), and an employee communication plan that sets expectations before January's paychecks do.
Who should use this payroll readiness packet
- Payroll administrators configuring pay codes and W-2 mapping
- Employers with bonus, commission, or differential pay in OT weeks
- HR teams fielding 'where's my tax-free overtime' questions
- Anyone choosing or re-negotiating a payroll vendor this year
What it helps prevent
- W-2s that can't report the qualified overtime amount the deduction requires
- Confusing the OT premium (deductible) with total OT pay (not)
- Regular-rate errors becoming visible on a federal tax document
- Employee relations damage from mismanaged expectations about withholding
- Vendor finger-pointing in January when the data isn't there
What’s inside
- Part 1 — What Qualifies (orientation)
- Part 2 — Payroll System Field Mapping
- Part 3 — W-2 Readiness
- Part 4 — Regular Rate Pressure Test
- Part 5 — Vendor Questions
- Part 6 — Employee Communication Plan
Before you process payroll, terminate, classify, deduct, or respond to a claim, get the decision reviewed.
Faulkner HR Solutions helps Texas employers, nonprofits, municipalities, and growing businesses fix the people systems behind recurring workplace problems. If this resource raised a risk flag, do not guess your way through the next step.