W-2 Transition Year: How IRS Notice 2025-69 Affects Your 2025 Filing

The OBBBA deductions for tips and overtime are retroactive to January 1, 2025, but the W-2 reporting codes that support them were not required for tax year 2025. This timing gap created a practical problem: how do you claim a deduction that depends on a W-2 code your employer was not obligated to use? IRS Notice 2025-69 answered that question by establishing transitional reporting rules for the first year. Below is what you need to know when filing your 2025 return (due in early 2026) and how reporting changes for TY 2026 onward.

What changed with IRS Notice 2025-69

When the OBBBA was enacted, it introduced two new W-2 Box 12 codes:

• Code TP: Reports qualified tip amounts eligible for the IRC Section 224 deduction (up to $25,000)
• Code TT: Reports qualified overtime premium amounts eligible for the IRC Section 225 deduction (up to $12,500 for single filers)

These codes were added to the IRS instructions for Forms W-2 and W-3, but the IRS recognized that employers needed time to update their payroll systems. Many employers could not implement the new codes in time for tax year 2025 W-2s (issued in January 2026). Notice 2025-69 addressed this by providing transitional relief, allowing alternative documentation for the first year.

The 2025 transition year

For tax year 2025, the IRS allowed flexibility in how employees document their qualified tips and overtime premium. The transitional rules work as follows:

• Tips: For TY 2025, transitional relief applied (IRS Notice 2025-69): employers could use Box 7, Box 14, or employee logs/paystubs in lieu of Code TP.
• Overtime: For TY 2025, Box 14 voluntary / any employer statement acceptable under IRS Notice 2025-69.

The transitional relief means that if your 2025 W-2 does not include Code TP or Code TT, you are not disqualified from claiming the deductions. You simply need to use one of the alternative documentation methods described in the Notice and maintain records in case the IRS requests substantiation.

Finding your tips without Code TP

If your 2025 W-2 lacks Code TP, here is how to determine your qualified tip amount:

1. Check W-2 Box 7 (Social Security tips): This box reports tip income subject to Social Security tax. If you work in a customarily tipped occupation, this amount is likely your qualified tip total. However, Box 7 may include tips from non-qualifying occupations if you held multiple jobs, so review it carefully.
2. Check W-2 Box 14 (Other): Some employers voluntarily reported qualified tips here during the transition year, with a label such as "Qual Tips" or similar notation.
3. Review pay stubs: Year-end or final pay stubs often show cumulative tip amounts. Match these against your W-2 to confirm the total.
4. Use your own tip logs: If you maintained a daily tip log (Form 4070A) or reported tips to your employer monthly (Form 4070), these records substantiate your qualified amount.

Your qualified tip amount is the total tips from customarily tipped occupations, capped at $25,000. If you are unsure whether your occupation qualifies, see the W-2 Code TP glossary entry for the list of qualifying occupations under IRC Section 45B.

Finding your overtime without Code TT

Identifying the overtime premium without Code TT requires more effort than tips, because W-2s do not have a standard box for overtime. Here is how to find the amount:

1. Check W-2 Box 14: Some employers voluntarily included overtime premium information here during the transition year.
2. Review pay stubs: Each pay stub should show overtime hours worked and the overtime rate. The deductible premium is only the portion above your regular rate. For time-and-a-half, the premium is 0.5x your regular hourly rate per overtime hour. For double-time, it is 1.0x.
3. Request an employer statement: Under Notice 2025-69, you can use any written employer statement that separates the overtime premium from regular wages.
4. Calculate from earnings records: If you have access to your employer's time-tracking system or annual earnings summary, calculate total overtime premium by multiplying overtime hours by the premium rate.

Remember that only the premium portion qualifies. If your regular rate is $20/hour and your overtime rate is $30/hour (time-and-a-half), only the $10/hour premium is deductible, not the full $30. This distinction is critical and is one of the most common errors when claiming the overtime deduction.

For more on the premium-only rule, see W-2 Code TTglossary entry.

Documentation to keep

Whether you use W-2 codes or transitional alternatives, retain the following records for at least three years after filing (the standard IRS audit window):

• All W-2 forms for the tax year, including any corrected W-2c forms
• Year-end pay stubs or annual earnings summaries from each employer
• Tip logs (Form 4070A or equivalent) if you reported cash tips
• Monthly tip reports submitted to your employer (Form 4070 or electronic equivalent)
• Any employer statements or letters quantifying overtime premium
• Time-tracking records showing overtime hours and applicable rates

If the IRS questions your deduction, you will need to show that your claimed amount matches documented tip income or overtime premium, that you worked in a qualifying occupation (for tips), and that you were an FLSA-covered employee (for overtime).

Mandatory reporting from TY 2026

Starting with TY 2026 (W-2s issued in early 2027), the transitional relief ends. Employers must use Code TP for qualified tips and Code TT for qualified overtime premium. The amounts in these codes will be the primary substantiation for Schedule 1-A deductions.

What this means for employees:

• Verify your W-2 early: When you receive your 2026 W-2, check that Box 12 includes Code TP and/or Code TT if you expect those deductions. If the codes are missing, request a corrected W-2 (Form W-2c) from your employer before filing.
• Compare to pay stubs: Cross-reference the Code TP and TTamounts against your pay stubs to confirm accuracy. Payroll errors in the first year of mandatory reporting are not uncommon.
• Report discrepancies promptly: If the amounts on your W-2 are incorrect, contact your employer as soon as possible. Corrected W-2s can take weeks to process, and filing with incorrect amounts may trigger IRS notices.

The shift from transitional to mandatory reporting simplifies the process. For 2026, you will enter the Code TP amount directly on Schedule 1-A, Part I, and the Code TT amount on Part II. The Schedule 1-A deduction calculator walks through the full form with your specific amounts. For background on the 2025 transition year compared to the new 2026 rules, see Reading Your W-2 in 2027.