IRS Releases Updated W-2 Guidance for Reporting Qualified Overtime

Employers have new details on how to report qualified overtime compensation on 2026 Forms W-2. On Aug. 6, the IRS issued updated guidance in Fact Sheet FS-2026-13, which supersedes the version published in January.

Qualified Overtime Remains Subject to Withholding

Qualified overtime pay remains subject to federal income tax withholding, and payroll may not reduce withholding because an employee expects to claim the deduction.

An employee who wants withholding adjusted must furnish an updated, valid Form W-4 that accounts for the expected deduction. The 2026 Form W-4 has a place for it in step 4(b).

Code TT: What to Report

Beginning with tax year 2026, employers must report qualified overtime compensation separately on Form W-2, in box 12 using code TT. Qualified overtime compensation is the portion of overtime pay required under Section 7 of the FLSA that exceeds the employee’s regular rate – generally, the half-time premium rather than the employee’s entire time-and-a-half payment.

Report the full amount of qualified overtime compensation, even when the employee can’t deduct all of it. The IRS example: an employer that paid $30,000 in qualified overtime reports $30,000, though the deduction is capped at $12,500, or $25,000 for taxpayers filing a joint return.

Correct Errors on a Form W-2c

An employer that finds an error in box 12, code TT must file Form W-2c with the Social Security Administration and furnish a copy to the employee as soon as possible.

Information-reporting penalties may apply and may also be reduced for timely corrections.

More info: Fact Sheet FS-2026-13