W-2 Reporting: Qualified Tips and Overtime 2026

This article is for general information, not tax or legal advice. Reporting rules and IRS form instructions change. Verify current requirements with the IRS, or talk to a payroll professional, before you file.

Tax year 2026 is the first year the new tips and overtime reporting is mandatory, and the W-2 you file next February looks different from the one you filed last February. Three additions: Box 12 code TP for cash tips, Box 12 code TT for qualified overtime, and a new Box 14b for the Treasury Tipped Occupation Code.

The deadline is February 1, 2027, which sounds comfortably far off until you remember that the amounts you report cover pay runs that started on January 1, 2026. If your payroll system was not splitting those amounts out from the beginning, you have most of a year to reconstruct.

This post is about the filing mechanics on the employer side: what goes in each box, what does not, and how to rebuild the numbers if you have been running blind since January.

What actually changed on the 2026 Form W-2

The One Big Beautiful Bill created above-the-line deductions for qualified tips and qualified overtime for tax years 2025 through 2028. Employees claim those deductions on their 1040. Your job is to give them the substantiation.

The whole change fits in one table.

Box	Code	What goes in it	Who it applies to
12	TP	Total cash tips reported to the employer for the year	Tipped employees
12	TT	Total qualified overtime compensation, premium portion only	Non-exempt employees paid FLSA overtime
14b	none	Treasury Tipped Occupation Code, up to two, comma separated	Any employee with a code TP amount
12	TA	Employer contributions to a section 128 Trump account, capped at $2,500 per year	Employees with such an account

Box 14 itself was split. The old free-form “Other” field is now Box 14a, and Box 14b exists solely to carry occupation codes.

The most important clarification, and the place most of the confusion lives: none of these entries reduce Box 1, Box 3, or Box 5. They are informational. The tips and the overtime premium are still fully taxable wages for withholding purposes, and both halves of Social Security and Medicare still apply, which means your employer FICA match does not shrink either. Code TP and code TT are flags, not exclusions.

The 2026 deduction caps, for context when an employee asks: $25,000 for qualified tips, and $12,500 for qualified overtime ($25,000 if married filing jointly). Both start phasing out at $150,000 of modified AGI for single filers and $300,000 for joint filers. Those are the employee’s numbers to apply on the 1040, not yours to apply in payroll.

Box 12 code TT: the premium only, and only FLSA overtime

Code TT covers the extra half in time-and-a-half, not the whole overtime paycheck.

The IRS defines qualified overtime as compensation paid above the regular rate that is required under section 7 of the Fair Labor Standards Act. Time-and-a-half breaks into two pieces: the straight-time portion (which the employee would have earned anyway) and the premium on top. Only the premium is qualified.

The worked example

An employee paid $20/hour works 50 hours in an FLSA workweek.

FLSA requires 1.5 x $20 = $30/hour for the 10 overtime hours, so $300 of overtime pay.
Regular portion: 10 x $20 = $200. Already in Box 1 with everything else.
Premium portion: 10 x $10 = $100.
Only the $100 goes in Box 12, code TT.

Box 1 still shows the full $1,100 of wages for that week (40 hours at $20 plus the $300 of overtime pay). Boxes 3 and 5 are unaffected. If you put $300 in code TT, you have overstated the employee’s deduction by $200 and handed them an incorrect return.

If you need to check the underlying math on a given week, the overtime pay calculator separates base and premium the same way the box does.

What does not go in code TT

This is where multi-state employers get burned. Premium pay can be legally required or contractually owed and still fail the section 7 test.

Pay type	Goes in code TT?
FLSA premium for hours over 40 in a workweek	Yes, the half-time portion only
State-only daily overtime (California over 8 in a day)	No
Double-time above what the FLSA requires	No
Contract or collective bargaining premiums beyond FLSA	No
Weekend, holiday, or other voluntary employer premiums	No
Shift differentials	No
Overtime-style pay to an FLSA-exempt employee	No

The California example nobody runs

Take the same $20/hour employee in California, working four 11-hour days for a 44-hour week.

California daily overtime kicks in after 8 hours, so 3 hours a day, 12 hours for the week, are paid at 1.5x. That is $120 of premium pay under state law.

The FLSA only cares about hours over 40 in the workweek. That is 4 hours. The FLSA-required premium is 4 x $10 = $40.

Code TT shows $40, not $120. The other $80 is state-required premium, real money in the employee’s pocket, and not qualified overtime. Add a 13-hour day into the mix and the double-time hour splits again: the portion up to 1.5x can count toward the FLSA test, the extra half above it never does.

Shift and weekend premiums fail for the same reason. If you pay a night differential, run it through the shift differential calculator and keep it in its own earning code, because none of it belongs in Box 12.

Box 12 code TP and Box 14b: tips and the occupation code

Code TP is the total cash tips the employee reported to you during the year. That includes voluntary cash tips, charged and credit-card tips you pay out, and distributions the employee received from a tip pool.

What it excludes: mandatory service charges and auto-gratuities. A 20% party-of-eight charge added to the check by the restaurant is a service charge, and service charges are wages, not tips. They belong in Box 1 like any other wages and nowhere near code TP. Amounts paid in digital assets are also out.

Box 14b and the occupation code

Box 14b carries the Treasury Tipped Occupation Code, a three-digit identifier from Treasury’s list of more than 70 occupations across eight categories: beverage and food service, entertainment and events, hospitality and guest services, home services, personal services, personal appearance and wellness, recreation and instruction, and transportation and delivery. The final regulations under section 224 (TD 10044, published April 13, 2026) kept the proposed list essentially intact, adding visual artists, floral designers, and gas pump attendants.

Two rules matter operationally:

If you report a code TP amount, you must supply the occupation code. A tips figure with no TTOC leaves the employee unable to substantiate the deduction, and they will call you about it in March.
You may list up to two codes, comma separated, if the employee earned tips in two qualifying occupations. A person who bartends three nights and drives delivery two nights gets both.

How code TP sits with Boxes 7 and 8

Code TP does not replace anything. Box 7 (Social Security tips) and Box 8 (allocated tips) work exactly as they always have. Code TP is an additional entry, and for most tipped employees the code TP figure and the Box 7 figure will look similar without being the same number, because Box 3 and Box 7 together stop at the 2026 Social Security wage base of $184,500 while code TP has no cap.

If your stubs do not currently show tips as their own line, the pay stub generator is a quick way to see what the split should look like before you push it into payroll.

What you have to be tracking, and how to backfill if you weren’t

Every payroll system now needs a finer earning-code structure than it probably had in 2025. At minimum:

Qualified overtime premium (the half-time portion)
Non-qualified premium pay (state-only OT, double-time above FLSA, differentials, holiday premiums)
Overtime base hours at straight time
Cash tips reported by the employee
Non-tip amounts distributed to staff (service charges)
A per-employee Treasury Tipped Occupation Code field

If you have all six and they have been populated since January, you are done reading this section.

The mid-year reconstruction

If you do not, work through it in this order. Tedious, but not difficult.

Pull year-to-date detail by earning code and by employee. Summaries will not do. You need transaction-level hours and rates.
Recompute the FLSA premium per workweek, not per pay period. This is the trap. FLSA overtime is a workweek test. An employee who works 48 hours one week and 32 the next has 8 qualified overtime hours across a biweekly period, but a biweekly summary shows 80 hours and zero overtime. Reconstruct from the workweek up or the number will be wrong.
Reconcile against timesheets. Rebuilding weekly totals from raw punches is what the timesheet hours calculator is for.
Separate tips from service charges in whatever your POS reported, and assign each tipped employee an occupation code.
Post a year-to-date adjustment before the W-2 run so the boxes populate correctly the first time.

Three things that break the reconstruction

Nondiscretionary bonuses. A production or attendance bonus retroactively raises the regular rate for the weeks it covers, which retroactively raises the FLSA premium, which changes code TT. If you paid a quarterly bonus in June, the qualified overtime for those thirteen weeks is higher than your payroll register says.

Status changes. An employee who moved from non-exempt to exempt in April has qualified overtime for part of the year and none after. An employee who moved the other way has the reverse. Neither shows up cleanly in a year-end total.

Occupation changes. A server promoted to shift supervisor in August may have stopped being tip-eligible partway through. The tips they earned before the change still count; the occupation code needs to reflect where they actually earned them.

Running this per employee, per pay period, across a team is exactly the shape of problem WorkLogs44 handles: tips live in a dedicated income bucket and overtime is entered as separate hours-and-rate pairs, so the base and premium components stay distinguishable per person rather than collapsing into one gross number. For a whole roster, the multi-employee payroll calculator does the same thing side by side. It models and computes the amounts; it does not file W-2s for you.

For the broader list of things that go wrong at year end, see our guide to common payroll mistakes.

Deadlines, penalties, and corrections

February 1, 2027. That is the date for furnishing Copies B, C, and 2 to employees and for filing with the Social Security Administration, paper or electronic, no difference. January 31 falls on a Sunday that year. If you file 10 or more information returns of any type in aggregate, you must file electronically.

The transition relief is gone. Notice 2025-62 gave penalty relief for tax year 2025 only, and covered the failure to separately report cash tips, occupation codes, and qualified overtime. Notice 2025-69 then told individuals how to estimate their own 2025 amounts without W-2 support, including dividing total overtime pay by 3 to isolate the time-and-a-half premium. Neither notice extends to tax year 2026.

Penalties under sections 6721 and 6722 apply per return, and they stack: one penalty for the incorrect filing with SSA, a second for the incorrect statement furnished to the employee. For returns due in 2026 the tiers ran $60 (corrected within 30 days), $130 (corrected by August 1), $340 (after that or never filed), and $680 for intentional disregard. The amounts for returns due in 2027 are inflation-adjusted, so check the current IRS figures rather than assuming.

When you need a W-2c

If a W-2 has already gone out with a wrong code TT or code TP amount, correct it on Form W-2c. A wrong qualified overtime figure directly changes the employee’s deduction, so it is not the kind of error that can be quietly absorbed into next year’s numbers. The same applies to a missing occupation code paired with a code TP amount, since the employee cannot substantiate the deduction without it.

The cleaner path is catching it before the run. Reconcile in November, not in February.

State income tax does not follow automatically

The tips and overtime deductions are federal. States have split, and by mid-2026 the map fell into a few rough groups. Positions are still moving, so confirm your own state before you tell an employee anything.

Rolling-conformity states picked up both deductions by default, and several then legislated their way back out of one or both. Colorado is the case to know: rolling conformity handed it both, and it subsequently required the overtime deduction to be added back for state purposes, so a Colorado employee keeps the tips deduction federally and on the state return but loses the overtime piece at the state line. Illinois likewise requires an add-back, and Maine and the District of Columbia decoupled as well. Static-conformity and AGI-start states like New York never picked either up in the first place. A few legislated conformity narrowly, with Indiana conforming for tax year 2026 only and Michigan conforming on overtime.

The part that matters for your filing: your federal W-2 reporting obligation does not change based on your state’s position. Code TT goes in Box 12 whether or not your state honors the deduction. What changes is that your state wage boxes may not tie to Box 1 the way they used to, and employees in decoupled states will ask why the deduction showed up federally and vanished on the state return. Have an answer ready.

The state-by-state picture on take-home pay generally is covered in our salary after taxes by state guide, and the state tax calculator will show the underlying rates.

Your 2026 W-2 season checklist

Confirm your payroll system has separate earning codes for qualified overtime premium and every other kind of premium pay.
Add a Treasury Tipped Occupation Code field to each tipped employee’s record.
Rebuild year-to-date qualified overtime by workweek, not by pay period.
Adjust for any nondiscretionary bonuses that retroactively raised the regular rate.
Flag employees who changed exempt status or tipped occupation mid-year.
Separate reported cash tips from mandatory service charges in your POS data.
Verify code TT holds premium only, never the full overtime pay.
Verify every code TP amount has a matching Box 14b code.
Confirm Box 1, 3, and 5 are unchanged by any of the above.
File and furnish by February 1, 2027, electronically if you have 10 or more returns.

Frequently Asked Questions

What is Box 12 code TT on a W-2?

Code TT is the total qualified overtime compensation for the year, meaning the FLSA-required premium portion only (the extra half in time-and-a-half), not the full overtime paycheck. It is new for tax year 2026.

What is Box 12 code TP on a W-2?

Code TP is the total cash tips the employee reported to the employer during the year, including charged and credit-card tips and tip-pool distributions. Mandatory service charges are excluded.

Does code TT or code TP reduce the wages in Box 1?

No. Both amounts are already included in Box 1, and in Boxes 3 and 5 as applicable. They are informational flags that let the employee claim an above-the-line deduction on the 1040. Withholding, Social Security, and Medicare are unchanged.

Do I have to report qualified tips and overtime on 2025 W-2s?

No. IRS Notice 2025-62 granted transition penalty relief for tax year 2025, and the 2025 forms were never updated with the new codes. Reporting was voluntary, commonly done in Box 14. Reporting is mandatory starting with tax year 2026.

What is the Treasury Tipped Occupation Code and where does it go?

It is a three-digit code identifying a tip-eligible occupation from the Treasury list of more than 70 occupations. It goes in the new Box 14b, and it must accompany any code TP amount. You may list up to two codes, comma separated, if the employee worked in two qualifying tipped occupations.

Does California daily overtime or double-time count as qualified overtime?

Only the portion required by section 7 of the FLSA qualifies. State-only daily overtime, double-time above the FLSA requirement, contract or union premiums beyond FLSA, and any overtime paid to an exempt employee are all excluded from code TT.

When are 2026 W-2s due?

February 1, 2027, for both furnishing employee copies and filing with the Social Security Administration, whether on paper or electronically. January 31, 2027 falls on a Sunday.

What if my payroll system didn't track qualified overtime separately all year?

Pull year-to-date detail by earning code, recompute the FLSA premium per workweek rather than per pay period, reconcile against timesheets, and post a year-to-date adjustment before the W-2 run. If a W-2 has already been issued with a wrong code TT or TP amount, correct it on Form W-2c.