W-2 Box 12 Code TT vs. Box 14: What Changed for Qualified Overtime Reporting?

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As an employer, tracking overtime is likely already part of your payroll process. Well, the One Big Beautiful Bill Act (OBBBA) introduced an income tax deduction for eligible individuals who receive qualified overtime, and it’s left employers asking, “Where on Form W-2 should I report it?”

While many may have used Box 14 for the 2025 tax year, the IRS recently introduced Box 12, Code TT, specifically for qualified overtime compensation starting with the 2026 tax year. 

However, it’s not as simple as just changing boxes. There’s more that filers need to be aware of. 

What Is Qualified Overtime Compensation?

But first, what are you actually reporting?

For tax years 2025 through 2028, eligible individuals can deduct qualified overtime compensation of up to:

• Up to $12,500, or 
• up to $25,000 for joint filers.

This deduction begins to phase out when modified adjusted gross income exceeds $150,000 or $300,000 for joint filers.

However, qualified overtime isn’t necessarily the employee’s entire overtime payment. Generally, it’s the amount paid above the employee’s regular rate as required under section 7 of the Fair Labor Standards Act (FLSA).

For example, if an employee’s regular hourly rate is $20, and their FLSA-required overtime rate is $30, then the additional $10 is generally the qualified overtime compensation — which is generally the amount employers must identify for the new reporting requirements.

Box 14: 2025’s Transitional Option

Requirement changes are never easy, especially when they happen in the middle of the year. 

In recognition of this, since OBBBA became law after the 2025 tax forms and payroll processes were already established, the IRS provided transition relief — meaning employers aren’t required to separately report qualified overtime compensation on the 2025 W-2 form.

However, separately providing qualified overtime information could make it easier for employees to determine and claim their deduction.

As such, employers were encouraged to provide this information through:

• Box 14 on Form W-2
• An online portal
• A separate written statement
• Another secure method

This makes Box 14 an optional transitional reporting method, rather than the permanent location. 

For employees who didn’t receive this information, the IRS provides guidance on how to reasonably determine their 2025 qualified overtime.

Box 12 Code TT: The New Standard 

The 2025 tax year is now behind us, and beginning with the 2026 tax year, qualified overtime enters a standardized reporting framework, and employers are required to report it separately.

A new Form W-2 Box 12 code was introduced to provide a designated reporting place: Code TT, the total amount of qualified overtime compensation.

Using our previous example, the employee would generally have the $10 exceeding the $20 regular rate under Code TT, not the entire $30 FLSA-required overtime rate.

Note: When preparing W-2s, this distinction means payroll systems must be able to identify qualified overtime compensation. Otherwise, the risk of incorrectly reporting all wages internally categorized as overtime increases.

Why Does Box 14 vs. Box 12 Matter?

It’s the difference between transition and standardization:

• For 2025, Box 14 provided an optional way to communicate qualified overtime during the transition year. 
• For 2026, Box 12 Code TT provides a standardized location designated for qualified overtime compensation reporting.

This standardized reporting makes it easier for employees, tax professionals, and tax software to identify the amount when preparing individual tax returns.

However, keep in mind that the new deduction does not mean all overtime wages are tax-free. Qualified overtime compensation is generally still subject to:

• Federal income tax withholding
• Social Security taxes
• Medicare taxes

Instead, the employee may claim the deduction on their individual income tax return.

Stay Ahead of 2026 W-2 Reporting Changes

The shift from optional Box 14 reporting in 2025 to standardized Box 12 Code TT reporting in 2026 means employers have a new W-2 requirement to prepare for. Understanding which overtime qualifies and ensuring the correct amount is reported is crucial for year-end filing accuracy.

When it’s time to file, TaxBandits can help simplify your W-2 reporting process with built-in validations, secure e-filing, and solutions designed to stay on top of changing filing requirements. 

Prepare for the new Code TT requirement and confidently e-file your 2026 Forms W-2 with TaxBandits.