No Tax on Overtime: What Employers Must Put on the 2026 W-2
Starting with the 2026 tax year, qualified overtime goes on the W-2. Here’s what to report, what to leave out, and how to fix it if it’s wrong.
Your employees are going to ask you about “no tax on overtime.” Some already have. And a lot of them think their next paycheck is about to get bigger.
It’s not. But the paperwork to make the deduction work lands on you. And it lands on the W-2.
What is Box 12, Code TT?
Starting with the 2026 tax year, you report each employee’s qualified overtime on their W-2 in Box 12, Code TT. That’s how your employee proves what they’re entitled to deduct on their own return.
What counts as qualified overtime?
Only the premium. The extra half of time-and-a-half.
If someone makes $20 an hour, the qualified piece of each overtime hour is the extra $10. Not the whole $30. And it has to be overtime the Fair Labor Standards Act requires. Overtime you pay because you’re generous, or because a contract says so, and the law wouldn’t have required it, doesn’t go in Box 12.
That’s why this is a different number than total overtime pay. If your payroll system lumps all overtime into one earnings code, it can’t tell the difference. That’s the part that has to be set up right.
Do I report the whole amount, even if my employee can’t deduct it all?
Yes. You report the full qualified overtime amount, even when the employee runs into the cap or the income phase-out. You’re not deciding who qualifies. You’re reporting what was paid.
Does this change what I withhold?
No. The IRS treats this as a deduction, not an exclusion from income. You still withhold income tax on overtime. You still take Social Security and Medicare, both your share and theirs. The benefit shows up when your employee files. If an employee wants it in their paychecks sooner, that’s a new W-4 from them, not a decision you make.
What if I get it wrong?
You fix it with a Form W-2c and give your employee a copy. That’s a corrected W-2. It’s more work for you, and it can hold up your employee’s return in the meantime. So an error in your payroll can turn into a problem on their taxes.
What should I do before January?
- Look at how your overtime is coded. If it’s all one earnings line, find out whether your system can separate the premium.
- Check who’s exempt and who’s not. Overtime paid to exempt employees doesn’t qualify, and misclassification is already expensive.
- Run a report on year-to-date overtime now, so the numbers don’t surprise you in January.
- Tell your team what’s coming. One line is enough: “It’s a deduction on your tax return, not a change to your paycheck.”
If you want the bigger W-2 picture, read our post on the new 2026 W-2 codes.
If you run payroll with APlus, our system calculates the qualified portion and puts it on the W-2. If you run it yourself, ask your software how it splits out the premium. Not sure? Contact your friendly APlus CSS if you have one if not, why not? 🙂 Seriously, though contact your trusted payroll tax professional for specific advice.
This is general information, not formal tax or legal advice. Rules change and details vary, so check your own situation with a qualified professional.