No tax on overtime: what a restaurant reports in box 12 code TT on the 2026 W-2

In January a line cook will open their W-2, see a new line in box 12, and ask why the number is half what they expected. For 2026, the first year the form carries "no tax on overtime", the employer fills that line in, and an employee can only deduct what you put there.

On 2026 W-2s, due Monday 1 February 2027, report in box 12 with code TT only the overtime premium the federal Fair Labor Standards Act (FLSA) requires: half the regular rate for each hour over 40 in a workweek. Not the whole overtime pay, not state daily overtime, not double time. Overtime is still subject to income tax withholding, Social Security and Medicare. There is no reporting relief for 2026. Last checked: 5 November 2026.

What is "no tax on overtime"?

It is a federal income tax deduction that employees claim on their own returns, created by Public Law 119-21 as section 225 of the tax code. The IRS fact sheet FS-2026-13 (August 2026), which replaced the January version, sets out the main points:

• It is the employee's deduction. They claim it on Schedule 1-A of Form 1040, for tax years 2025 to 2028.
• It is capped at $12,500 of qualified overtime a year, or $25,000 on a joint return, and reduced when modified adjusted gross income passes $150,000 ($300,000 joint).
• It covers FLSA overtime only. "Overtime compensation not required by the FLSA is not eligible for the deduction."
• It changes nothing on payday. Overtime is still subject to federal income tax withholding, Social Security, Medicare and federal unemployment tax. You may not cut withholding for it unless the employee gives you a new Form W-4.
• It depends on your W-2. For 2026 onward, an employee may not deduct "any amount of qualified overtime compensation in excess of what is reported on Form(s) W-2, box 12, code TT".

That last point is what makes this an employer task. For 2025, Notice 2025-69 let employees work out the figure themselves. For 2026, your box 12 is the number.

What goes in box 12 code TT?

The total qualified overtime you paid the employee in 2026, worked out week by week. The 2026 W-2 instructions put it in one line: "only the "half" portion of "time-and-a-half" compensation would be reported using code TT." FS-2026-13 (Q12) gives the formula for most employees, for each workweek:

Qualified overtime for the week =
  FLSA hours worked over 40  ×  one-half  ×  FLSA regular rate of pay

Three rules sit behind that formula:

1. The workweek is fixed. It is a regular 168-hour period you set, and each week stands alone. You cannot average two weeks.
2. The regular rate includes all pay for the work, except items the FLSA excludes. Tips are excluded. A share of a service charge is included, as our guide to service charges and tips explains.
3. Report the full amount, even above the cap. FS-2026-13's example: an employer that paid $30,000 of qualified overtime reports $30,000, even though the employee can deduct only $12,500.

How do you calculate it for a tipped server?

On the full minimum wage, not the cash wage. When you take the tip credit, DOL Fact Sheet 15 says "overtime must be calculated based on the full minimum wage", which is $7.25 federally. Tips are not part of the regular rate.

So a Texas server on a $2.13 cash wage who works 46 hours has 6 overtime hours, and code TT for that week is 6 × 0.5 × $7.25 = $21.75. Their tips, however large, do not change it. Tips go in box 12 with code TP instead, which our no tax on tips guide covers.

In a state with no tip credit, the regular rate is the state wage actually paid, plus any service charge share, so the same week produces a larger TT figure. The tip credit guide has the overtime arithmetic for tip-credit weeks.

Does California daily overtime count?

Only the part the FLSA would require anyway. FS-2026-13 (Q16) says that when overtime is paid under a state law, a union contract or your own policy, "only the amount minimally necessary to satisfy 29 USC § 207 is qualified overtime compensation". Daily overtime after 8 hours, double time, and premiums for weekends or holidays are not qualified unless the FLSA would have required them that week.

Here is the same week in three states. This is our worked comparison using each state's 2026 minimum wage (California $16.90, Washington $17.13, federal $7.25), the FS-2026-13 formula, and two schedules: a cook on four 12-hour shifts at $20 an hour, and a server on shifts of 10, 10, 10, 8 and 8 hours (46 total).

How the rows work:

• Cook in Texas or Washington: 8 hours over 40, premium 8 × $10 = $80.
• Cook in California: each 12-hour day has 4 hours of daily overtime, so 16 hours at time and a half and a premium of 16 × $10 = $160. The FLSA counts only the 8 hours over 40, so code TT is $80.
• Server in Texas: premium on the $7.25 minimum, 6 × $3.625.
• Servers in Washington and California: premium on the full state wage, 6 × half of $17.13 or $16.90. California's 6 daily overtime hours happen to equal the 6 weekly ones here. From January 2027 the floors rise; Washington's and Seattle's new rates are in our Seattle and Washington guide.

The California cook is the conversation to prepare for. Run that week 50 times and you paid $8,000 of overtime premium, but box 12 shows $4,000. Both numbers are correct.

Who does not get a code TT amount?

• Exempt salaried managers. If someone is exempt from FLSA overtime, they have no qualified overtime, whatever you pay them for extra hours.
• Owner-employees. FS-2026-13 (Q5) says an employee who owns at least 20% of the business and is actively engaged in managing it is generally exempt as a bona fide executive.
• Workers you pay on a 1099. In the rare case where someone is an employee for FLSA purposes but a contractor for tax purposes, qualified overtime goes in box 1d of Form 1099-NEC. If that describes a "freelance" cook working your shifts, fix the classification first.

What happens if code TT is wrong?

You correct it with Form W-2c. FS-2026-13 (Q11) says an employer that finds an error in code TT must file a W-2c with the Social Security Administration and give the employee a copy "as soon as possible", and penalties for incorrect information returns can apply. For returns due after 31 December 2026 those start at $60 per form if corrected within 30 days and rise to $340, according to the W-2 instructions.

Expect requests. If a W-2 understates the amount, the employee's only route is a corrected W-2 from you: the IRS says a substitute Form 4852 does not count (Q23), and an employee whose employer will not correct the form is stuck with the lower figure (Q22).

January checklist and wording for staff

Send this to your payroll provider in December, not the last week of January.

NO TAX ON OVERTIME: 2026 W-2 CHECKLIST

[ ] Confirm your workweek (start day and time) in writing.
[ ] List every non-exempt employee who worked over 40 hours in
    any 2026 workweek.
[ ] Confirm the regular rate includes service charge shares and
    bonuses, and excludes tips.
[ ] Tipped staff on a tip credit: premium on the full minimum
    wage, not the cash wage.
[ ] State daily overtime, double time, holiday premiums: report
    only the FLSA-required part in code TT.
[ ] Exclude exempt managers and 20%+ owner-employees.
[ ] Ask your payroll provider: does it compute code TT by
    workweek, and does it handle code TP and box 14b?
[ ] Spot-check two employees by hand against the formula.
[ ] File W-2s and W-3 with SSA and give staff copies by
    Monday 1 February 2027.
[ ] Keep the week-by-week calculation in case of W-2c requests.

Staff will ask you, not the IRS. A short note saves a lot of conversations:

About "no tax on overtime" on your 2026 W-2

- Box 12, code TT shows your qualified overtime: the extra "half"
  of time and a half that federal law requires for hours over 40
  in a week. It is not your total overtime pay.
- Extra overtime paid under state law or our own policy, such as
  daily overtime or double time, is not included. That is set by
  federal law, not by us.
- Your overtime was still taxed on each paycheck. The deduction
  is claimed on your own tax return, up to $12,500 ($25,000 if
  married filing jointly), and is reduced at higher incomes.
- If you think the box 12 amount is wrong, tell [name] by [date]
  and we will check it against your hours.

The rest of January's forms and dates, including penalties for late W-2s, are in our filing calendar. This guide is general information, so check with a tax adviser for your situation.

Can TablePort handle this for you?

Code TT is only as good as the hours behind it. TablePort's Staff Management add-on gives your payroll provider clean hours; it does not compute the figure.

1. Turn on the labor law presets for US federal FLSA, California or New York, so you get overtime warnings while you build the schedule.
2. Staff clock in on the till with a PIN, and each clock-in is matched to their shift. Attendance flags missed clock-outs and anyone who worked off the schedule, so you fix them before the week closes.
3. Approve each week's timesheets and export the hours as a CSV or in a format ready for Xero for your payroll provider.

One honest limit: TablePort does not run payroll, calculate code TT or produce W-2s. Your payroll provider does. See the staff rota page.