W-2 Code TP
Tax Glossary Term
Definition
W-2 Code TP is the Box 12 reporting code that employers use to report an employee's qualified tips eligible for the IRC Section 224 deduction. Starting in TY 2026, employers must enter Code TP in Box 12 of Form W-2 followed by the dollar amount of qualified tips the employee earned during the year. For tax year 2025, transitional relief under IRS Notice 2025-69 allows employers to report qualified tips through alternative methods such as Box 14 or employee logs, but Code TP replaces that ad hoc reporting and becomes mandatory for TY 2026 and later. The amount shown next to Code TP is the employee's qualified tips for the year, capped at $25,000 per taxpayer. This amount feeds directly into Schedule 1-A, Part I, where the taxpayer claims the above-the-line tips deduction. Code TP only covers tips from occupations that customarily receive tips as defined under IRC Section 45B. Cash tips self-reported on Form 4070 are included if the employer verifies them. FICA taxes still apply to the full amount of qualified tips — the deduction is for income tax purposes only.
Example
W-2 Box 12 shows Code TP: $20,000
Cap: $25,000
$20,000 is under the cap, so full amount is deductible
Schedule 1-A, Part I deduction: $20,000
Tax savings at 22.0% bracket: $20,000 × 22.0% = $4,400