Overtime Validation Bug (Desktop Version)

[HotToddy]

Bug Report: Schedule 1-A Validation Error (Pre-Tax Distortion)

Issue: The e-file validation script for the Section 225 Overtime Deduction (Schedule 1-A) is triggering a false-positive "Reasonableness" error by incorrectly using W-2 Box 1 as the denominator for its calculations instead of W-2 Box 3.

I spent nearly 2 hours on the phone today with technical support. I am not 100% confident this bug is being followed up on.  My Diagnostic Token is: [removed]-96664364

Technical Details:

• The Conflict: The software assumes a "Qualified Overtime Premium" cannot exceed 1/3 of total wages. My entry is exactly 1/3 of my Gross Wages (Box 3), but it appears as 46% of my Taxable Wages (Box 1).

• The Root Cause: The validation logic fails to account for Box 12 pre-tax contributions (e.g., 403b/401k). These contributions "shrink" Box 1, creating a mathematical distortion that falsely flags a perfectly legal 1.5x overtime premium ratio.

• The Impact: This error prevents e-filing for employees whose overtime work is significant and whose pre-tax retirement contributions are high, even when the data matches the W-2 perfectly.

Steps to Reproduce:

1. Enter a W-2 where 100% of the work is overtime (common for dual-role employees under the same EIN).

2. Include a significant pre-tax contribution in Box 12.

3. Attempt to claim the 33.3% overtime premium deduction on Schedule 1-A.

4. The software will block e-filing, citing that the overtime cannot be more than 1/3 of Box 1.

Thanks!

[JohnB5677]

Box 1 of the W-2 is the correct box to use when evaluating overtime.  Box 3 is Social Security wages.  However, I'd like to understand a couple of things.

• You're a dual-role employee
• This W-2 is 100% overtime.
• You should have a second W-2 with the same EIN for the straight-time portion of your dual role?

Combine the two W-2's that are from the same EIN.

The IRS will recognise the two EINs as the same and do the same calculation.

This will resolve the 33,3% overtime issue.

Contact us again with any additional details.

[HotToddy]

Thank you for the response, but combining the W-2s is not a viable solution for several reasons:

• Different EINs: These W-2s are from separate divisions within the same corporation and carry different Employer Identification Numbers (EINs). Combining them would cause an IRS mismatch error and is not an option.

• Separate Capacities: One role is salaried (Standard Time), while the other is strictly hourly (100% Overtime). This is not a 'dual role' under a single payroll record; they are distinct entries.

The Root Mathematical Error Remains:

The issue isn't how the data is entered; it’s the denominator the validation script uses for the 'Reasonableness' check.

1. The Box 1 Distortion: Box 1 represents taxable wages after pre-tax contributions (401k/403b). For any employee who saves for retirement, Box 1 is significantly lower than their actual gross earnings.

2. The Logic Failure: By using Box 1 as the denominator, the software creates a false-positive error.

   • Example: Gross Wages (Box 5) = $100,000. Overtime = $33,333 (Exactly 1/3, which is legal).

   • The Savings Penalty: If that person contributes $23,000 to a 401k, their Box 1 becomes $77,000.

   • The Bug: TurboTax then calculates $33,333 \div 77,000 = 43.2\%.

   • The Result: The software blocks the e-file because $43.2\% > 33.3\%, even though the overtime is exactly 1/3 of the earned wages.

The Requested Fix:

This validation script should be updated to compare the Schedule 1-A entry against Box 5 (Medicare Wages), which represents true gross earnings and does not 'shrink' based on retirement contributions.

Please escalate this to the Product Integrity / Calculations Team. This bug effectively prevents any taxpayer with significant overtime and high retirement savings from e-filing.

[JohnB5677]

I don't understand.

• If you work for a company that has two different EINs, you essentially work for two different companies.
• You confirmed this when you said that you couldn't combine the W-2s.
• If that is true you work for one company that  pays a fixed wage, 
• You work for another company that evidently pays you that wage plus 50%
• You don't have any overtime.