W-2 Season Prep: Get the New Code TT Overtime Reporting Right This Year
Year-end payroll does not need to feel overwhelming. A clear checklist can help you prepare accurate Forms W-2 and give your employees the information they need for tax filing.
For tax year 2026, there is one important change to understand:
Employers must separately report qualified overtime compensation on Form W-2, Box 12, using Code TT.
This reporting was optional for 2025. It is required for 2026.
I recommend reviewing your payroll setup now. That gives you time to confirm how overtime is tracked, identify the correct amount, and resolve questions before W-2 forms are prepared.
What is Code TT?
Code TT reports the employee’s total qualified overtime compensation paid during the year.
Qualified overtime generally means overtime compensation required under the Fair Labor Standards Act, or FLSA. It applies to employees who are covered by the FLSA and eligible for overtime.
Code TT does not report all overtime wages.
It reports only the overtime premium portion above the employee’s regular rate.
A simple example
Suppose an employee earns $20 per hour. Their FLSA overtime rate is $30 per hour, or time-and-a-half.
For one overtime hour:
$20 is the regular wage portion.
$10 is the overtime premium portion.
Only the $10 premium portion is qualified overtime compensation for Code TT.
The full overtime payment remains taxable wages. Code TT is a separate information item used when the employee determines whether they can claim the qualified overtime deduction.
The IRS General Instructions for Forms W-2 and W-3 explain that Code TT reports the total amount of qualified overtime compensation. The amount reported may be higher than the amount the employee can ultimately deduct.
2025 reporting was optional. 2026 reporting is required.
The 2025 tax year was a transition year. Employers were not required to separately report qualified overtime compensation on Forms W-2. Some employers chose to provide overtime information in Box 14 or another statement.
That transition relief does not continue for tax year 2026.
For wages paid in 2026, applicable employers must:
Identify qualified overtime compensation.
Track the amount paid to each eligible employee.
Report the amount in Form W-2, Box 12, using Code TT.
Furnish the completed W-2 to the employee.
File the W-2 with the Social Security Administration.
The regular Form W-2 deadline applies. The IRS instructions currently list February 1, 2027, as the deadline to file 2026 Forms W-2 with the SSA and furnish them to employees.
The deduction limits are separate from the W-2 reporting amount
The Code TT amount and the deduction amount are not always the same.
Your business must report the full amount of qualified overtime compensation paid. The employee then uses that information on their individual tax return to determine the allowable deduction.
For tax years 2025 through 2028, the qualified overtime deduction is limited to:
$12,500 for an individual tax return.
$25,000 for a joint return.
The deduction also phases out when modified adjusted gross income exceeds:
$150,000 for taxpayers filing individually.
$300,000 for married taxpayers filing jointly.
These limits do not reduce the amount you report in Code TT.
Another example
Imagine your employee received $18,000 of qualified overtime compensation during 2026.
You should report:
Box 12, Code TT: $18,000
The employee may not be able to deduct the full $18,000. Their deduction may be limited by the $12,500 or $25,000 cap. It may also be reduced by the income phaseout.
Your responsibility is to report the qualified overtime compensation accurately. The employee’s tax preparer or tax software determines the final deduction.
Confirm what qualifies as overtime
Before you calculate Code TT, review how your payroll system defines overtime.
For most employees, qualified overtime is based on:
FLSA coverage.
FLSA overtime eligibility.
Hours worked over 40 in a fixed workweek.
The employee’s FLSA regular rate.
The overtime premium required by the FLSA.
An employee who is properly exempt from FLSA overtime generally does not have qualified overtime compensation for Code TT.
You should also separate FLSA-required overtime from other premium pay. For example, an employer may offer extra pay for:
Working on weekends.
Working on holidays.
Working more than eight hours in one day.
Working more than a certain number of hours under a state rule.
Working under a collective bargaining agreement.
Some of these payments may not be qualified overtime compensation under the federal rules. The answer depends on the specific payroll arrangement and the FLSA calculation.
When in doubt, do not guess. Ask your payroll provider or tax professional to review the calculation.
Use the premium portion, not the full overtime rate
A common payroll mistake is reporting the entire overtime payment as qualified overtime compensation.
The Code TT calculation generally focuses on the amount above the regular rate.
A practical review may look like this:
Confirm the employee’s regular rate for the workweek.
Confirm the number of FLSA overtime hours.
Calculate the required overtime premium.
Track the premium separately from regular wages.
Add the employee’s qualified overtime amounts for the calendar year.
Review the total before preparing the W-2.
Payroll systems may use different labels. You may see terms such as “overtime premium,” “FLSA premium,” or “qualified overtime.” The label is less important than the underlying calculation.
The records should clearly show how the Code TT amount was determined.
Review other new Box 12 information
Code TT is not the only new item to review on 2026 Forms W-2.
Code TP for reported cash tips
Code TP reports the total amount of cash tips reported to the employer.
Cash tips may include tips received:
In cash.
Through credit or debit card transactions.
Through a tip-sharing arrangement.
If you report cash tips using Code TP, the 2026 W-2 instructions also require a Treasury Tipped Occupation Code in Box 14b. Up to two occupation codes may be listed.
Tips generally remain subject to applicable income tax withholding and Social Security and Medicare taxes. Code TP provides information used when an employee determines whether they qualify for the qualified tip deduction.
The qualified tip deduction may be limited to $25,000 and may also be affected by income limits and occupation requirements.
Other familiar Box 12 codes
Your payroll review may also include common codes such as:
Code D: 401(k) elective deferrals.
Code W: Employer contributions to a health savings account.
Code DD: Cost of employer-sponsored health coverage.
Code FF: Permitted benefits under a QSEHRA.
Code AA: Designated Roth 401(k) contributions.
Do not replace existing codes with TT or TP. Add the new code only when the employee’s compensation meets the applicable requirements.
What to do if Code TT is missing or incorrect
A missing or incorrect Code TT amount can affect the employee’s ability to claim the overtime deduction.
For tax years after 2025, an employee generally cannot simply use personal records to add an omitted amount. The overtime must be separately reported on a properly furnished Form W-2.
If the original Form W-2 has already been filed with the SSA and you discover an error, you should:
Recalculate the correct qualified overtime amount.
Prepare Form W-2c, Corrected Wage and Tax Statement.
File the Form W-2c with the SSA.
Furnish the corrected Form W-2c to the employee as soon as possible.
File Form W-3c when submitting one or more W-2c forms.
Review whether an employment tax correction, such as Form 941-X, is also required.
If you discover the mistake before filing the original W-2 with the SSA, your payroll provider may be able to void the incorrect form and issue a corrected W-2 instead.
An employee should request a corrected W-2c when qualified overtime is missing or understated. Form 4852 is not a substitute for the required Code TT reporting. The employee may be limited to the amount shown on the original W-2 unless the employer provides a corrected W-2c.
The IRS 2026 qualified overtime fact sheet provides additional guidance on W-2 reporting and corrections.
A practical year-end payroll checklist
Use this checklist to keep your process simple:
Confirm your payroll software supports 2026 Form W-2 reporting.
Identify employees who received FLSA-required overtime.
Confirm each employee’s FLSA overtime eligibility.
Separate regular wages from overtime premium amounts.
Review overtime calculations by workweek.
Track qualified overtime paid during calendar year 2026.
Review reported cash tips and Code TP, if applicable.
Add Treasury Tipped Occupation Codes in Box 14b when required.
Reconcile W-2 wage totals with payroll records and quarterly Forms 941.
Review Box 12 codes before filing.
Confirm employee names, addresses, Social Security numbers, and state information.
Create a clear process for issuing W-2c corrections.
Keep payroll reports and calculation support with your business records.
Keep your payroll in perfect order
Code TT adds one more item to your year-end payroll review. It does not need to create confusion.
The smoothest process is to track qualified overtime throughout the year instead of trying to rebuild the calculation in January. Review the premium portion, confirm your payroll settings, and keep your records organized.
At Jenni’s Business Services, I help small business owners keep their books and tax information clear, accurate, and manageable. Payroll reporting is easier when your records are already in order.
If you want support preparing for year-end payroll and tax filing, visit the Jenni’s Business Services blog or contact us. I can help you move through the process step by step, without the stress.
This article provides general information for small business owners. Payroll and tax rules can depend on your employees, industry, state, and payroll structure. For advice about your specific situation, consult a qualified tax professional or payroll specialist.
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