Should employers separately report overtime hours or only the total wages on federal W-2s?
Executive summary
Beginning with the 2026 tax year employers are required to separately report the total dollar amount of “qualified overtime compensation” on Form W-2 (not simply fold it into Box 1 wages), but the statutory and IRS rules call for reporting amounts, not a separate tally of overtime hours; transitional relief covers 2025 reporting methods [1][2][3].
1. What the law actually requires: amounts, not hours
The One Big Beautiful Bill Act (OBBBA) and subsequent IRS guidance impose information‑reporting obligations on payors to furnish an accounting of qualified overtime compensation on Forms W-2 and certain 1099s, and the finalized 2026 Form W-2 includes a new Box 12 code (TT) to capture the total amount of qualified overtime compensation — a dollar figure, not an hours count [3][4][2].
2. Why employers must prepare payroll systems now
Multiple payroll and legal advisers advise employers to change systems to separately track the qualified overtime dollars so that the new Box 12 code can be populated for tax year 2026, because if employers do not provide the required separate reporting after the transition period the IRS could assess information‑return penalties per incomplete W‑2 (estimates cited in guidance range roughly $60 to $680 per defective return) [5][6][2].
3. The 2025 transition year: flexibility on method, still provide information
For tax year 2025 the IRS provided transition relief and recognized current forms lacked dedicated fields; employers could approximate or voluntarily provide the overtime amount by a reasonable method (for example Box 14, separate statement, or online portal) and the IRS said it would not impose penalties for 2025 failures provided employers complied with the transition rules [3][7][8].
4. Practical consequence: dollar reporting affects employee deductions, not payroll taxes
The separate reporting of qualified overtime dollars enables employees to claim a temporary deduction for overtime pay on their personal returns for tax years 2025–2028; employers are still responsible for withholding and reporting Social Security, Medicare and income tax on the full wages — the change creates an informational field that supports the employee deduction, it does not exempt overtime from payroll taxes [1][9][10].
5. What is not required (and what remains unclear)
None of the cited authoritative materials require employers to report overtime hours on W‑2s; all point to reporting the total qualified overtime compensation amount [4][2]. The guidance leaves open some operational questions — final instructions and certain definitions (for example, the Secretary’s acceptable “reasonable methods” for 2025 or specific occupation codes for tips) were being refined in notices and draft/final W‑2s, so employers should track forthcoming IRS instructions for any narrow procedural requirements [3][7][4].
6. Bottom line for payroll and compliance teams
Employers must prepare to separately report the dollar amount of qualified overtime compensation on Form W‑2 beginning with the 2026 tax year (Box 12 code “TT” on the draft/final form), should use 2025 as a transition year to adopt methods to capture and communicate that amount to employees, and do not need to separately report overtime hours on the federal W‑2 under current guidance — but failure to move systems into compliance after the transition window risks penalties and employee confusion [2][3][6].