How will Form W-2 and Box codes change for reporting qualified overtime in 2026 and beyond?
Executive summary
The 2026 Form W-2 adds a specific Box 12 code “TT” to report the total amount of qualified overtime compensation, turning what was voluntary transition reporting in 2025 into a formal, standardized field employers must populate for tax year 2026 and later [1] [2]. Alongside TT the W-2 updates also introduce new Box 12 codes for tipped and other items and a new Box 14b field for Treasury Tipped Occupation Codes to support tip‑related deductions created by the One Big Beautiful Bill Act (OBBBA) [3] [4].
1. What changes the IRS actually made to the Form W‑2 for 2026
The finalized 2026 Form W‑2 adds a new Box 12 code — TT — explicitly labeled for “total amount of qualified overtime compensation,” and the form’s release incorporated other OBBBA-driven codes such as TP for cash tips and TA for a specific employer contribution program, while also creating Box 14b to accept up to two Treasury Tipped Occupation Codes used to determine tip-deduction eligibility [3] [1] [4].
2. Why the TT code matters: what “qualified overtime” means for reporting
“Qualified overtime compensation” is the premium portion of overtime required under the Fair Labor Standards Act — effectively the additional one‑half of the regular rate in time‑and‑a‑half pay — and the IRS and guidance materials make clear the deduction and reporting focus on that premium component, not the entire overtime payout [4] [5].
3. The 2025 transition window and employer options before 2026
For the 2025 tax year the IRS provided transition relief: employers could furnish qualified overtime amounts by a “reasonable method” such as a separate statement, Box 14 entry, or employee portal rather than using the finalized Box 12 code, and payroll vendors documented multiple approaches to support that voluntary reporting in 2025 [6] [7] [8].
4. Operational impact on payroll systems and employer obligations
Beginning with the 2026 reporting year employers must implement system changes to separately track and report TT amounts on Box 12 of Form W‑2, which will require payroll vendors and internal payroll teams to isolate the overtime premium, factor in components that affect the regular rate (such as nondiscretionary bonuses) and update employee communications and withholding worksheets accordingly [5] [7] [9].
5. Ambiguities, lingering risks, and who to watch for guidance
Although the final 2026 W‑2 was published and the IRS issued general instructions, specific operational details and the employee-facing instructions were still being clarified in drafts earlier in the process, and analysts warn employers to monitor payroll-provider updates and IRS Q&As because implementation choices (for example how states interact with the federal changes) and the precise method of calculating “qualified” overtime can create compliance risk if systems aren’t aligned [10] [6] [7].
6. Broader context and temporary nature of the reporting change
The reporting changes flow from OBBBA’s temporary deduction for qualified overtime for tax years 2025‑2028, which prompted the W‑2 redesign to add TT and related tip codes; employers should plan for the mandatory Box 12 TT reporting for tax years 2026 onward while noting the statutory deduction itself is time‑limited and subject to legislative change [2] [1].