2026 Form W-2 Changes for Tips and Overtime: What Small Employers Report
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How we wrote this: A summary of the IRS General Instructions for Forms W-2 and W-3 (2026), the IRS tip recordkeeping page and IRS Publication 6133 (all linked below), checked October 29, 2026. This is general information, not tax or payroll advice. Payroll providers and tax professionals can confirm how the rules apply to your business.
The 2025 tax law (P.L. 119-21, which the IRS now also calls the Working Families Tax Cuts) created two temporary deductions for workers: one for qualified tips and one for qualified overtime. For tax year 2025, the IRS gave employers transition relief, so many W-2s didn't show these amounts separately. For 2026 Forms W-2, due in early 2027, there are new places to report them.
If you have tipped staff or pay overtime, here is what changes.
The deductions, briefly (for context)
From IRS Publication 6133 and the IRS tip recordkeeping page:
| Tips | Overtime | |
|---|---|---|
| Years | 2025 through 2028 | 2025 through 2028 |
| Maximum deduction | $25,000 per return | $12,500 ($25,000 joint) |
| Phase-out starts (MAGI) | $150,000 ($300,000 joint) | $150,000 ($300,000 joint) |
| Who claims it | The worker, on Schedule 1-A | The worker, on Schedule 1-A |
The worker needs a Social Security number valid for employment, and married workers must file jointly. Your job as the employer is to report the right amounts so workers can claim it.
New on the 2026 Form W-2
The 2026 W-2 instructions add three items:
Box 12, code TP: total cash tips reported to the employer. "Cash tips" includes tips received in cash, charged tips and tips received under a tip-sharing arrangement. Tips still go in boxes 1, 5 and 7 as before; code TP is an additional, separate total.
Box 14b: Treasury Tipped Occupation Code(s). Box 14 is split into 14a (the old "Other" box) and 14b. If you report tips with code TP, enter up to two occupation codes for the jobs the tips were earned in. If any tips came from a job that isn't on the IRS list, one of the codes must be "000". The codes are on the IRS page at IRS.gov/TippedOccupations.
Box 12, code TT: total qualified overtime compensation. Only the premium portion counts. The instructions' example: for time-and-a-half, report only the "half."
What counts as qualified overtime
The W-2 instructions define it as overtime pay required under section 7 of the Fair Labor Standards Act that is more than the employee's regular rate. Publication 6133 adds that amounts not required by section 7, for example overtime owed only because of state law or a union contract, aren't deductible.
That matters if your policy is more generous than federal law, such as daily overtime or double time on holidays. Only the federally required premium belongs in code TT. Your payroll system needs to track that separately.
What counts as qualified tips
Per the IRS tip page and Pub. 6133:
- Voluntary cash or charged tips from customers, including shared tips
- Paid in an occupation the IRS lists as customarily receiving tips on or before December 31, 2024
- Mandatory service charges added to the bill are not qualified tips, per the W-2 instructions
Tips are still generally subject to income tax withholding and Social Security and Medicare taxes when an employee receives $20 or more in a month. The deductions change the worker's income tax, not payroll tax.
Deadlines for 2026 W-2s
The W-2 instructions set February 1, 2027 both for furnishing W-2s to employees and for filing them with the Social Security Administration, on paper or electronically. Penalties for late or incorrect forms start at $60 per form if corrected within 30 days.
A short to-do list for this year
- Ask your payroll provider whether its 2026 W-2s will fill in code TP, code TT and box 14b
- Map each tipped job to its Treasury Tipped Occupation Code
- Separate mandatory service charges from voluntary tips in your POS and payroll
- Track the FLSA-required overtime premium separately from any extra premium you pay
- Check addresses and SSNs before January
If you also pay contractors, our guide to W-9s and Form 1099-NEC covers that side, and filing 1099s free with IRIS covers e-filing.