Reading Your W-2 in 2027: Codes TP and TT

When your employer sends you a W-2 form in early 2027, you will notice something new. For tax year 2026, the IRS added two Box 12 codes that did not exist before: Code TP for qualified tips and Code TT for qualified overtime premium pay. These codes are central to claiming the OBBBA deductions on your federal return.

This guide walks through every box on the W-2, explains what each one means, and then focuses on the new codes and how they connect to the deductions available on Schedule 1-A.

What is a W-2?

Form W-2, Wage and Tax Statement, is a federal form your employer files with the Social Security Administration and furnishes to you each January. It reports your total compensation, tax withholdings, and benefit allocations for the prior calendar year. You need it to file your federal and state income tax returns.

Your employer must provide your W-2 by January 31 of the following year. For tax year 2026, that deadline is January 31, 2027. If you receive your W-2 electronically, it may arrive earlier.

The W-2 contains multiple copies. Copy A goes to the SSA. Copy B is for your federal return. Copy C is for your records. Copy 2 goes to your state or local tax authority, and Copy D is kept by your employer.

Box-by-box breakdown

Here is what each box on the W-2 reports:

Boxes a through f: Identification

• Box a: Your Social Security number.
• Box b: Your employer's Employer Identification Number (EIN).
• Box c: Your employer's name and address.
• Box d: A control number your employer uses internally (not always filled in).
• Box e: Your legal name as registered with the SSA.
• Box f: Your address.

Boxes 1 through 8: Wages and withholding

• Box 1: Wages, tips, and other compensation subject to federal income tax. This is your gross pay minus pre-tax deductions like 401(k) contributions and health insurance premiums.
• Box 2: Federal income tax withheld from your paychecks during the year.
• Box 3: Social Security wages. This may differ from Box 1 because pre-tax retirement contributions are still subject to Social Security tax. Capped at $184,500 for 2026.
• Box 4: Social Security tax withheld, calculated at 6.2% of Box 3.
• Box 5: Medicare wages and tips. Usually the largest wage figure because almost all compensation is subject to Medicare tax with no wage cap.
• Box 6: Medicare tax withheld, calculated at 1.5% of Box 5.
• Box 7: Social Security tips. Tips reported to your employer that are subject to Social Security tax.
• Box 8: Allocated tips. Tips your employer allocated to you if you work at a large food or beverage establishment and reported tips fell below a threshold. These are not included in Box 1.

Boxes 9 through 14: Additional information

• Box 9: Reserved (no longer used).
• Box 10: Dependent care benefits provided through your employer's plan.
• Box 11: Distributions from a nonqualified deferred compensation plan.
• Box 12: Coded entries for specific types of compensation and benefits. Up to four code/amount pairs can appear here. This is where the new codes TP and TT are reported for 2026. See the next section for details.
• Box 13: Checkboxes for statutory employee, retirement plan participant, and third-party sick pay.
• Box 14: Other information your employer wants to report, such as state disability insurance, union dues, or uniform payments. Employers have flexibility in what they include here.

Boxes 15 through 20: State and local

• Box 15: Your employer's state and state tax ID number.
• Box 16: State wages, tips, and other compensation.
• Box 17: State income tax withheld.
• Box 18: Local wages, tips, and other compensation.
• Box 19: Local income tax withheld.
• Box 20: Name of the locality for Box 18/19.

The new Box 12 codes for 2026

The One Big Beautiful Bill Act (OBBBA) created two new above-the-line deductions: one for qualified tips and one for qualified overtime premium pay. To support these deductions, the IRS introduced two new Box 12 codes starting in TY 2026:

• Code TP: Qualified tips eligible for the deduction under IRC section 224.
• Code TT: Qualified overtime premium pay eligible for the deduction under IRC section 225.

Both codes became mandatory for employers starting in TY 2026. For tax year 2025, the IRS provided transitional relief under Notice 2025-69, allowing employers to report these amounts using Box 14 or other methods. That transitional relief no longer applies for 2026 W-2s.

How Code TP works

Code TP reports the total dollar amount of your qualified tips for the year. Qualified tips are tips earned in a customarily tipped occupation as defined under IRC section 45B. Both cash tips and charged tips count, provided they were properly reported to your employer.

The amount shown next to Code TP on your W-2 is the starting point for your tips deduction on Schedule 1-A Part I. You can deduct up to $25,000 of qualified tips per year. The tips reported under Code TP are already included in your Box 1 wages, so claiming the deduction does not change your W-2; it reduces your taxable income on your 1040.

For example, if your W-2 shows Code TP with an amount of $18,000, you would enter $18,000 on Schedule 1-A Part I. Since $18,000 is under the $25,000 cap, your full tips amount is deductible (subject to MAGI phase-out rules).

Links for more detail: W-2 Code TP definition | No Tax on Tips Calculator | Schedule 1-A Deduction Calculator

How Code TT works

Code TT reports your qualified overtime premium pay for the year. A critical detail: this is only the premium portion of your overtime pay, not your total overtime wages. For time-and-a-half, the premium is the extra 0.5x above your regular rate. For double-time, the premium is the extra 1.0x.

For example, if your regular hourly rate is $30 and you worked 200 hours of time-and-a-half overtime, your total overtime pay would be $9,000 (200 x $45). But only $3,000 (200 x $15 premium) qualifies, and that $3,000 is what your employer reports under Code TT.

The deduction is capped at $12,500 for single and head of household filers, or $25,000 for married filing jointly. You must be a non-exempt employee under the FLSA (or equivalent state law) to qualify. Salaried-exempt employees and self-employed individuals are not eligible.

The amount from Code TT flows to Schedule 1-A Part II on your tax return. Like the tips deduction, the overtime deduction is above-the-line, meaning you can claim it alongside the standard deduction of $16,100 (single).

Links for more detail: W-2 Code TT definition | No Tax on Overtime Calculator

What if your employer got it wrong?

If your W-2 is missing Code TP or Code TT, or if the amounts look incorrect, take these steps:

1. Compare the Code TP amount against your tip records (Form 4070 submissions or pay stub tip totals).
2. Compare the Code TT amount against your pay stubs, focusing on the premium portion of overtime hours only.
3. Contact your payroll department and request a corrected Form W-2C if you find an error.
4. If your employer refuses to issue a correction, you can file Form 4852 (Substitute for Form W-2) with the IRS.

Do not file your return with a known incorrect W-2. The amounts in Box 12 are what the IRS uses to verify your Schedule 1-A deductions. A mismatch between your W-2 and your return may trigger a notice.

Common W-2 issues for 2026

Because codes TP and TT are new, payroll software updates were required for 2026. Some common issues to watch for:

• Missing codes entirely: Some smaller employers may not have updated their payroll systems. Both codes are mandatory for TY 2026.
• Code TT showing total overtime instead of premium: Some payroll systems may incorrectly report total overtime wages rather than just the premium portion. Check your pay stubs.
• Tips split across Code TP and Box 7: Code TP should capture all qualified tips. Box 7 reports Social Security tips separately. These serve different purposes and may overlap in dollar amounts.
• Code TP on a non-tipped occupation W-2: If you do not work in a customarily tipped occupation, Code TP should not appear on your W-2.
• Multiple W-2s: If you have more than one employer, each W-2 will have its own Code TP or TT amounts. Add them together for Schedule 1-A, but the combined total is still subject to the annual caps.

How to use your W-2 to claim OBBBA deductions

Here is the step-by-step process for turning your W-2 data into deductions on your 2026 return:

1. Gather your W-2s. If you have multiple employers, collect all W-2 forms.
2. Find Code TP in Box 12. Add up all Code TP amounts across your W-2s. This is your total qualified tips.
3. Find Code TT in Box 12. Add up all Code TT amounts across your W-2s. This is your total qualified overtime premium.
4. Complete Schedule 1-A Part I using your total qualified tips. The deduction is the lesser of your total qualified tips or $25,000, subject to MAGI phase-out.
5. Complete Schedule 1-A Part II using your total qualified overtime premium. The deduction is the lesser of your total or $12,500 (single/HoH) or $25,000 (MFJ), subject to MAGI phase-out.
6. Transfer the total deduction from Schedule 1-A to Schedule 1, then to Form 1040 Line 10.

Both deductions are above-the-line, so they reduce your adjusted gross income (AGI). You can claim them whether you take the standard deduction of $16,100 (single) or itemize. They do not, however, reduce your FICA obligations: Social Security tax at 6.2% and Medicare tax at 1.5% still apply to all wages including tips and overtime.

If you are in the 22.0% tax bracket, a $25,000 tips deduction could reduce your federal income tax by up to $5,500.

Use our No Tax on Tips Calculator or No Tax on Overtime Calculator to estimate your savings before you file.