W-2 Box 12 Code TT and TP: 2026 Employer Reporting Rules

A new employer reporting rule takes effect for the 2026 tax year: qualified overtime and qualified tips get their own W-2 Box 12 codes. Qualified overtime goes in W-2 Box 12 code TT, and qualified tips go in code TP. These codes first appear on the 2026 Form W-2 that you furnish to employees in January 2027, per the IRS 2026 General Instructions for Forms W-2 and W-3. They do not exist on the 2025 form.

The rules trace to the One Big Beautiful Bill Act (P.L. 119-21), which created temporary income-tax deductions for overtime premiums and tips for tax years 2025 through 2028. This post covers the employer side: the exact codes, what belongs in each box, who has to report, the deadlines, and how the 2025 transition year differs. If you run a restaurant, hotel, retail store, or construction crew, your payroll team should read the mechanics closely so the figures you report are accurate and defensible.

What Is W-2 Box 12 Code TT?

Box 12 code TT reports an employee’s total qualified overtime compensation for the year, and it appears for the first time on the 2026 Form W-2. Per the IRS 2026 General Instructions for Forms W-2 and W-3, code TT captures only the overtime premium required under Section 7 of the Fair Labor Standards Act, not the employee’s full overtime wages. It is one of three new OBBBA codes, alongside TP and TA.

The 2026 form adds three Box 12 codes under the One Big Beautiful Bill Act: TA (employer contributions to a Trump account), TP (total cash tips), and TT (total qualified overtime compensation), a point confirmed by the IRS instructions and the American Payroll Association. Read the current IRS General Instructions for Forms W-2 and W-3 before you configure payroll.

Does Code TT Include the Full 1.5x Overtime Pay or Just the 0.5x Premium?

Code TT includes only the 0.5x premium, not the full 1.5x overtime wage. The statute defines qualified overtime compensation as the portion of overtime pay that exceeds the employee’s regular rate, which is the “half” of time-and-a-half. The underlying regular-rate portion does not qualify and does not belong in Box 12 code TT.

The IRS states the deductible amount is “the pay that exceeds their regular rate of pay – such as the ‘half’ portion of ‘time-and-a-half’ compensation.” Notice 2025-69 is more precise about the mechanics:

“The portion of overtime compensation in excess of the individual’s regular rate is [the] overtime premium, which is generally the ‘half’ portion of the ‘one and one-half times’ overtime rate that is minimally required by the FLSA.” — Internal Revenue Service, Notice 2025-69

If you pay more than the FLSA floor, only the required half counts. The IRS gives a clear rule: “if an employer pays double the individual’s regular rate for hours worked over 40 in a workweek, only the one-half portion that is relied upon to comply with the FLSA requirement is qualified overtime compensation.” The extra employer premium is excluded.

What Counts as Qualified Overtime for Code TT?

Qualified overtime is overtime required under Section 7 of the FLSA, paid to a covered non-exempt employee, in excess of the regular rate. Overtime paid for any other reason does not qualify, even if you pay it at a higher rate. That distinction decides what your payroll system should feed into Box 12 code TT.

Per IRS Notice 2025-69, overtime does not qualify when it is “paid at a higher rate than the FLSA requires for working on weekends or holidays, or pursuant to state or local law, company policy, or union contracts.” Two common exclusions follow directly from the FLSA test:

• Exempt or ineligible workers. Pay to salaried-exempt staff is not FLSA-required overtime, so it does not go in code TT.
• State-only overtime. Daily overtime owed under state law but not under federal FLSA Section 7 is excluded.

A $20/Hour Worked Example

Here is the premium-only rule in practice for a worker with a $20 regular hourly rate paid time-and-a-half. The reportable code TT amount is the overtime hourly pay minus the regular rate, per hour, summed across the year. Only that gap is qualified overtime.

1. Regular rate: $20.00 per hour.
2. Overtime rate at time-and-a-half: $30.00 per hour.
3. Qualified overtime premium: $30.00 minus $20.00, which equals $10.00 per overtime hour. That $10.00 is what goes in Box 12 code TT and is eligible for the deduction; the $20.00 regular-rate portion does not qualify.

What this means for you: your payroll or timekeeping system must isolate the FLSA premium at the transaction level. Reporting the full $30.00, or lumping non-FLSA premiums in, overstates code TT and the employee’s deduction.

What Is the Difference Between W-2 Code TP and Code TT?

Code TP reports total cash tips; code TT reports total qualified overtime compensation. Both are new for 2026, both support income-tax deductions with a MAGI phaseout starting at $150,000 single and $300,000 joint, and neither changes payroll tax. The table below shows the mechanics side by side.

Mandatory service charges added to a bill are not qualified tips, so they stay out of code TP even though they reach the employee as pay. The overtime deduction phases out completely at $275,000 single and $550,000 joint, reduced by $100 for each $1,000 of MAGI over the threshold.

When Does Box 12 Code TT Reporting Start for Employers?

Separate reporting of qualified overtime is required for tax year 2026 and later, using Box 12 code TT. That means calendar-year 2026 wages, on the Form W-2 you furnish to employees and file with the Social Security Administration by January 31, 2027. Tax year 2025 is a transition year with penalty relief, so 2025 W-2s are not updated for these codes.

For the 2025 transition year, IRS Notice 2025-62 grants penalty relief and encourages employers to report qualified overtime by another reasonable method, such as Box 14 of the Form W-2, an online portal, or a written statement, because code TT is not yet on the form. The IRS confirms no penalties apply for failing to separately report qualified tips and qualified overtime on 2025 information returns.

What this means for you: 2025 is a grace year, but 2026 is mandatory. Once the transition relief ends, the standard W-2 information-return reporting rules and their penalties apply to a missing or incorrect code TT. Confirm your payroll provider will support codes TP and TT on the 2026 form well before year-end.

Do Codes TP and TT Affect FICA or Withholding?

No. Codes TP and TT support income-tax deductions only; they are not exemptions from payroll tax. Qualified tips and qualified overtime remain fully subject to federal income tax withholding and to both the employer and employee share of Social Security and Medicare tax. The deduction is claimed by the employee on the return, not applied at the payroll level.

The rates are unchanged across the 2025 through 2028 window: Social Security is 6.2% each for employer and employee, and Medicare is 1.45% each, for a 7.65% employee share of FICA. Tips of $20 or more per month remain subject to both shares of Social Security and Medicare tax. For employers in hospitality and real estate and construction, that means overtime and tip wages still flow through payroll tax exactly as before; only the employee’s income-tax picture changes.

Which Employers and Industries Are Affected?

Any employer that pays FLSA-required overtime or receives employee tip reports must comply, so the reach is broad. The rule lands hardest on payroll-heavy, hourly, and tipped workforces: restaurants and hospitality, retail, and construction. These sectors combine high overtime volume with tip income, which puts both codes TP and TT in play on the same W-2.

Restaurants and hotels will populate both boxes, so their systems must separate voluntary tips from mandatory service charges and isolate the FLSA overtime premium. Retail and construction employers with heavy overtime will focus on code TT, and construction crews paid premiums under union contracts must exclude those non-FLSA amounts. If your team relies on outsourced accounting and bookkeeping, confirm the payroll workflow is configured before the first 2026 pay run.

Next Steps Before the 2026 Tax Year

Three moves protect you. First, confirm your payroll software will support Box 12 codes TP and TT for 2026 wages. Second, verify that your timekeeping system isolates the FLSA overtime premium and separates cash tips from mandatory service charges. Third, brief managers now so 2026 hours are coded correctly from the first pay period, not reconstructed at year-end.

Getting the definitions right matters because the employee’s deduction depends on what you report. As of 2026, the safest path is accurate, transaction-level capture built into your business tax planning and compliance and payroll process. For the primary source, review the IRS guidance on the qualified overtime deduction in Notice 2025-69.

Frequently Asked Questions

Do employers still withhold taxes on overtime and tips in 2026?

Yes. Codes TP and TT reflect income-tax deductions, not exemptions. Qualified overtime and qualified tips remain subject to federal income tax withholding and to both the employer and employee share of Social Security (6.2%) and Medicare (1.45%) tax. The employee claims the deduction on the return.

How do I report code TT on my tax return?

Employers do not claim the deduction; they only report the qualified overtime amount in Box 12 code TT. The employee uses that reported amount to claim the above-the-line overtime deduction on Schedule 1-A of their individual return, subject to the $12,500 single or $25,000 joint cap and the MAGI phaseout.

Can I claim the overtime or tip deduction if my 2025 W-2 does not have the code?

Yes. The 2025 Form W-2 was not updated for these codes, so employers report qualified overtime by a reasonable method such as Box 14 under Notice 2025-62. The deduction is still available for tax year 2025; taxpayers use the separately reported amount even though code TT is not on the 2025 form.

What should I do if my employer put the wrong amount in code TT or TP?

Ask your employer to review the figure and issue a corrected Form W-2c if it is wrong. Because code TT should contain only the FLSA premium and code TP only voluntary cash tips, common errors are reporting full overtime wages or including mandatory service charges. The corrected amount is what supports the deduction.

Contact Us: If you have questions about configuring payroll for Box 12 codes TP and TT, or about the overtime and tip deductions for your business, contact WhippleWood at info@whipplewood.com. We help business owners report these amounts accurately and keep positions you can defend.