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The Mandate Monitor

Tips and overtime reporting on W-2s

Checked November 8, 2026Source: Internal Revenue Service

Short answer

Workers can deduct up to $25,000 of qualified tips and up to $12,500 of qualified overtime pay ($25,000 on a joint return) for tax years 2025 through 2028, and employers must report the amounts those deductions rely on. On 2026 Forms W-2, due February 1, 2027, the IRS has employers put cash tips in box 12 with code TP, each tipped worker’s Treasury Tipped Occupation Code in new box 14b, and qualified overtime in box 12 with code TT, counting only the extra half of time-and-a-half that federal law requires. The IRS waived penalties for leaving these amounts off 2025 forms (Notice 2025-62), and that relief does not carry into 2026.

Next date: February 1, 2027: 2026 Forms W-2 with the new tips and overtime entries due to employees and the Social Security Administration.

Dates

  1. · Federal

    2026 Forms W-2 with the new tips and overtime entries due to employees and the Social Security Administration

    Box 12 code TP shows cash tips, box 12 code TT shows qualified overtime, and box 14b shows the Treasury Tipped Occupation Code; January 31, 2027 is a Sunday, so the deadline moves to Monday, February 1.

  2. · Federal

    Last day of tax year 2028, the final year of the tips and overtime deductions under current law

Earlier dates (3)
  • January 1, 2026: First tax year with no transition relief. Employers and payers must separately report cash tips, occupation codes and qualified overtime for 2026 pay; the IRS penalty relief in Notice 2025-62 covered 2025 only.
  • July 4, 2025: Public Law 119-21, commonly called the One Big Beautiful Bill Act, is enacted. It creates the qualified tips and qualified overtime deductions for tax years 2025 through 2028.
  • January 1, 2025: Tips and overtime deductions start, along with the new separate-reporting rules for employers and payers, for tax years beginning after December 31, 2024.

What employers have to do

  1. Give each tipped employee a Treasury Tipped Occupation Code (TTOC) from the IRS list of occupations that customarily received tips on or before December 31, 2024, for example 101 for bartenders or 102 for wait staff. Enter up to two codes in box 14b of the 2026 Form W-2, and enter 000 as one of them if any tips came from an occupation not on the list.
  2. Report the total cash tips each employee reported to you in box 12 with code TP. Tips remain subject to income tax withholding and to Social Security and Medicare tax.
  3. Work out qualified overtime each workweek: hours over 40 times one-half times the employee’s regular rate of pay under the Fair Labor Standards Act. If you pay more than federal law requires, such as double time, only the required half counts.
  4. Report the full qualified overtime amount in box 12 with code TT, even when it is above what the employee can deduct. The IRS’s example: an employee paid $30,000 of qualified overtime gets $30,000 in code TT, although the deduction is capped at $12,500.
  5. Keep withholding income tax on overtime pay. You may withhold less only if the employee gives you a new Form W-4 that accounts for the overtime deduction (the 2026 Form W-4 handles it in step 4(b)).
  6. If you find an error in these entries after filing, file Form W-2c with the Social Security Administration and give a copy to the employee as soon as possible.
  7. For 2025 forms, the IRS encouraged (but did not require) employers to give employees tips and occupation figures through an online portal or a separate statement, and overtime figures through box 14, an online portal or a separate statement, so employees could claim the deductions.

Questions employers ask

Who has to follow this?

Employers whose employees report cash tips to them (tips paid in cash or charged by customers, including tips shared through tip pools), and employers that pay overtime required by section 7 of the Fair Labor Standards Act. Payers that report cash tips paid to non-employees use Form 1099-NEC boxes 1b and 1c or Form 1099-MISC boxes 13a and 13b. Overtime goes on Form 1099-NEC (box 1d) or 1099-MISC (box 14) only in the rare case of a worker who is an employee under the Fair Labor Standards Act but treated as an independent contractor for tax purposes.

What are the penalties?

Missing or incorrect tips, occupation-code or overtime entries on 2026 Forms W-2 and 1099 make the form an incorrect information return under 26 U.S.C. §§ 6721 and 6722. For W-2s due in 2027, the filing penalty is $60, $130 or $340 per form depending on how late the correction comes, with a separate penalty for incorrect employee copies. Notice 2025-62 waived these penalties for tax year 2025 only, and only for forms that were otherwise complete and correct, with the tips and overtime included in total wages.

All federal employer rules · Deadline calendar

Sources

  1. 26 U.S.C. § 6051(a)(18)–(19)
  2. General Instructions for Forms W-2 and W-3 (2026): box 12 codes TP and TT, box 14a and 14b, deduction limits, due date February 1, 2027, Internal Revenue Service (read Nov 8, 2026)
  3. FS-2026-13 (August 2026): updated questions and answers on the qualified overtime deduction, including employer reporting in box 12 code TT, Internal Revenue Service (read Nov 8, 2026)
  4. Notice 2025-62: relief from certain penalties for tips and overtime information reporting, taxable year 2025, Internal Revenue Service (read Nov 8, 2026)
  5. Occupations that customarily and regularly received tips on or before Dec. 31, 2024 (Treasury Tipped Occupation Codes), Internal Revenue Service (read Nov 8, 2026)
  6. Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026): boxes 1b–1d and 13a, 13b and 14, Internal Revenue Service (read Nov 8, 2026)
  7. What the 'No Tax on Tips’ deduction means for you, Internal Revenue Service (read Nov 8, 2026)