There are actually two separate issues here that I haven't seen discussed together yet in this thread.
1. What to enter in ProConnect's qualified overtime field
The field under Wages/Salaries/Tips labeled "Qualified overtime compensation included on Form W-2, box 1" is misleading. It sounds like it wants the total overtime amount, but per IRS Notice 2025-69, what belongs there is the premium portion only — the "half" in time-and-a-half. For standard time-and-a-half employees, that means you need to pre-calculate before entry:
Total overtime from pay stubs ÷ 3 = amount to enter in ProConnect
If you enter the full overtime amount, the form will deduct the entire amount — significantly overstating the deduction. I confirmed this the hard way on a return this week.
For 2025, since employers aren't required to break out overtime on the W-2, your best documentation sources are year-end pay stubs (YTD overtime column) or a direct request to the employer's payroll department.
2. Make sure pay attention to state laws regarding the exemption
For Alabama preparers — these are two completely separate benefits and easy to conflate:
- Alabama Act 2024-437 provided a state-level overtime exemption from January 1 through June 30, 2025 only. It expired and was not renewed. Employers were required to report this amount in W-2 Box 14 labeled "EX OT WAGES" and to exclude it from Box 16 (state wages). ProConnect handles this automatically via the Box 16/Box 1 wage differential — you don't need a separate entry for the Alabama exemption if your W-2 data entry reflects the correct state wages.
- Federal OBBBA overtime deduction covers the full year (Jan–Dec 2025) but is the premium portion only (÷3), as described above. Alabama did not adopt this federal deduction.
- Alabama also did not adopt the OBBBA senior deduction ($6,000 for taxpayers 65+). However, since that deduction flows below AGI on the federal return (Schedule 1-A into 1040 line 13b), it never enters Alabama's calculation at all — no Schedule M addback is needed.
Hope this helps anyone working through Federal & Alabama returns with overtime this season.
