Starting with tax year 2026, employers and other payers must separately report qualified overtime compensation to employees, most commonly in box 12, code TT of Form W-2. The IRS confirmed this in Fact Sheet 2026-13, issued August 6, 2026, which replaces the January FAQ set (FS-2026-01) and closes out the transition relief that applied for 2025. For 2026 returns, an employee can only deduct the amount their employer actually reported in that box. There's no reconstructing the figure from pay stubs anymore.

What counts as qualified overtime compensation

Qualified overtime compensation is the "half" portion of "time-and-a-half," not the full overtime payment. It's the amount of overtime pay required under section 7 of the Fair Labor Standards Act (29 U.S.C. § 207) that exceeds an employee's regular rate of pay. If an employer voluntarily pays more than the FLSA requires, such as double time, only the FLSA-required premium counts. The IRS fact sheet works this through with an example: an employee paid $20/hour who works 10 overtime hours at double time receives $400 in overtime pay, but only $100 of it (the portion required under section 207) is qualified overtime compensation for deduction purposes.

Only employees who are FLSA overtime-eligible generate qualified overtime compensation at all. An employee who owns at least a 20% equity interest in the business and is actively engaged in its management is generally treated as an exempt executive and won't have a code TT amount, regardless of hours worked.

Where it gets reported

For tax year 2026, payors and employers must separately report qualified overtime compensation:

• Most commonly, on Form W-2, box 12, using code TT.

• On Form 1099-NEC, box 1d, or Form 1099-MISC, box 14, only in the rare case where the worker is an employee for FLSA purposes but is treated as an independent contractor for federal tax purposes.

The amount reported in box 12, code TT is the full qualified overtime paid for the year, not the capped deductible amount. Schedule 1-A (Form 1040) takes that reported figure and applies the deduction limits to arrive at what's actually deductible.

No 2025-style relief for 2026

For 2025, employers weren't required to separately report qualified overtime compensation, and employees could reconstruct the amount using worksheets in the Form 1040 instructions. That relief doesn't carry into 2026. Starting this year, an employee can't claim more than what's reported on their Form(s) W-2 in box 12, code TT. If the number is missing or wrong, the fix is a corrected Form W-2c from the employer, not a self-prepared substitute. The IRS fact sheet is explicit that Form 4852 (the substitute wage statement) doesn't satisfy the reporting requirement here, so it can't be used to claim the deduction if an employer won't issue a W-2c.

The deduction cap and phase-out

The deduction itself hasn't changed: up to $12,500 of qualified overtime compensation per return, or $25,000 on a joint return, reduced once modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). The deduction is available whether the taxpayer itemizes or takes the standard deduction. To claim it, the employee needs a Social Security number valid for employment, and married taxpayers must file jointly.

Where this shows up in a firm's workflow

This is a mid-year payroll check as much as a filing-season one. Firms running payroll for clients, or reviewing a client's payroll provider's setup, should confirm now that 2026 pay runs are actually capturing box 12, code TT for FLSA overtime-eligible employees. That's easier to fix in August than to reconstruct in February. At intake, flag clients with hourly or overtime-eligible staff, including owner-operators who may assume they qualify but don't meet the FLSA overtime-eligible test once the 20%-equity exemption applies. See how SignalsHQ handles W-2 and 1099 intake for where this check fits into document review.