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UPDATE: OFM would like to remind agencies that no changes will be implemented in HRMS and no further guidance will be provided for reporting overtime in 2025. The IRS has issued two notices related to H.R. 1:
Feel free to share the IRS notices with your employees.
OFM is continuing to work on guidance and necessary changes to HRMS for identifying and reporting FLSA-mandated overtime for tax years 2026-2028.
As a reminder, agencies should never provide tax advice to employees.
Message originally sent 12/9/2025 at 10:47 am
H.R. 1 (OBBBA) “No Tax on Overtime” – No Changes to HRMS for 2025
H.R. 1, signed into law on July 4, 2025, as Public Law 119-21 included a provision that has been referred to as “no tax on overtime”. For tax years 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay (generally, the “half” portion of “time-and-a-half” compensation) that is required by the Fair Labor Standards Act and reported on a Form W-2, Form 1099, or other specified statement furnished to the individual. While this may eventually benefit some employees, Washington State general government will not be implementing any changes in HRMS for 2025. Significant system changes would be required but cannot be made yet due to uncertainties that cannot be resolved for this tax year.
What does this mean for employees?
- The qualified overtime will not be reported on IRS Form W-2 for 2025.
- If eligible, employees may still claim the tax deduction individually when filing their 2025 tax return, dependent on IRS rules and guidance.
- No action is needed from employees at this time.
What the state is doing next
The Office of Financial Management is working with partner agencies to:
- Analyze how Washington’s overtime rules may be treated under federal law
- Monitor IRS guidance and finalize reporting requirements
- Plan HRMS changes to track qualifying overtime separately
- Prepare for implementation in future tax years (2026–2028)
Our commitment
We want to ensure that any implementation:
- Is accurate and compliant with federal law
- Supports consistent application across all employee groups
We will continue to monitor developments and share updates when more information becomes available.
For more information on IRS guidance for individual taxpayers, please select the link below:
Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025 | Internal Revenue Service
As a reminder, agencies should never provide tax advice to employees.
Additional information:
- This communication was sent to the OFM GovDelivery HRMS Communications topic
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