W-2 Box 12 Code TT and How Overtime Is Reported for the 2026 Deduction

Your 2026 W-2 introduces a new Box 12 code: Code TT. This code reports the qualifying overtime premium pay under the OBBBA (IRC §225) that is eligible for the federal overtime income deduction. Unlike Code TP for tips, Code TT reports only the premium portion of overtime pay, not total overtime wages. This distinction is critical, and this guide explains exactly how it works.

What Is W-2 Box 12 Code TT?

Code TT appears in Box 12 of your W-2 and represents the overtime premium pay eligible for the OBBBA deduction. The premium is the additional pay above your regular hourly rate for hours worked beyond the FLSA threshold (typically 40 hours per week). This is the amount you can deduct on Schedule 1-A, subject to the $12,500 annual cap ($25,000 for joint filers).

The Premium-Only Rule and Why Code TT Is Less Than Your Overtime Pay

This is the most misunderstood aspect of the overtime deduction. Code TT does not equal your total overtime wages. It reports only the premium portion. Here is how the math works:

For a worker earning $25/hr who works 10 hours of time-and-a-half overtime, the total overtime pay is $375.00, but Code TT reports only $125.00(the premium). The base-rate portion ($250.00) of those hours is regular wages and is not deductible under IRC §225.

IRS Notice 2025-69 Transition Rules

Because Code TT requires employers to separate overtime premium from total overtime wages in their payroll systems, the IRS issued Notice 2025-69 with transition provisions:

• Good-faith compliance: Employers who make a reasonable effort to implement Code TT reporting for 2026 will not face penalties for calculation errors during the transition.
• Alternative documentation: If Code TT is missing or incorrect, employees may calculate the premium from pay stubs. For each overtime hour, subtract your regular hourly rate from the overtime rate to determine the premium per hour, then multiply by overtime hours worked.
• Implementation deadline: All employers must have Code TT reporting operational by the end of tax year 2026. The transition window applies to early 2026 pay periods.

How to Read Your W-2 for Overtime

1. Locate Box 12. Box 12 has four rows (12a-12d). Each shows a letter code and dollar amount.
2. Find Code TT. The amount next to "TT" is your qualifying overtime premium pay for the year.
3. Understand what it is NOT. Code TT is not your total overtime pay, not your total hours worked beyond 40, and not Box 1 wages. It is specifically the premium portion calculated by your employer.
4. Cross-check with pay stubs. If you tracked overtime hours, you can verify: Code TT should roughly equal (overtime hours) x (your regular hourly rate) x (overtime multiplier minus 1). For time-and-a-half, that is OT hours x regular rate x 0.5.

How to Claim the Deduction on Schedule 1-A

1. Line 2, Overtime income deduction: Enter the lesser of your total Code TT amount or $12,500($25,000 if MFJ).
2. Phase-out calculation: If your MAGI exceeds $150,000 (Single/HoH) or $300,000(MFJ), calculate the reduction using the Schedule 1-A worksheet or our OBBBA Phase-Out Calculator.
3. Transfer to Form 1040: The Schedule 1-A total flows to Schedule 1, Part II, reducing your AGI. This is above-the-line, so it works with the standard deduction.

Worked Example for a Warehouse Worker with 400 OT Hours

Worked Example for a Nurse with Double-Time Shifts

State Conformity and Whether Your State Follows Code TT

Whether your state recognizes the overtime deduction depends on its OBBBA conformity status. Check your state:

• Colorado Overtime Tax (conforms)
• Iowa Overtime Tax (conforms)
• Illinois Overtime Tax (addback required)
• Alabama Overtime Tax (expired state exemption)
• Pennsylvania Overtime Tax (independent system)

Who Is NOT Eligible

• Salaried-exempt employees: Even if you regularly work 50+ hours, exempt employees under the FLSA do not receive overtime premium pay and are not eligible.
• Self-employed and independent contractors: The deduction applies only to W-2 employees.
• Married Filing Separately filers: Excluded by IRC §225.
• Voluntary overtime at regular rate: If your employer pays overtime hours at your regular rate (which violates FLSA for non-exempt workers), there is no premium to deduct.

Key Points to Remember

• Code TT is new for 2026 and appears in Box 12 of your W-2.
• It reports only the premium portion of overtime, not total overtime wages.
• The deduction cap is $12,500 (Single/HoH) or $25,000 (MFJ).
• FICA still applies to all overtime wages, including the premium.
• Only FLSA non-exempt employees qualify. Salaried-exempt and self-employed are excluded.
• The deduction sunsets after December 31, 2028.