A worker who logged overtime in 2025 could reconstruct the number without any help from the payroll department. Pay stubs, a calendar and a little arithmetic were enough, and the figure went on the tax return whether or not it showed up anywhere on the W-2. That option is gone for 2026. The number now has to come from a single box that only an employer can fill in, and anything outside that box is unusable.
Notice 2025-69 covered a blank 2025 W-2, and nothing covers 2026
The deduction for qualified overtime compensation comes from section 225 of the Internal Revenue Code, added by the One, Big, Beautiful Bill Act (P.L. 119-21), and it runs for tax years 2025 through 2028. Under section 225(a), an employee can only deduct qualified overtime compensation that the employer included on a properly furnished Form W-2. For 2025, the IRS chose not to enforce that condition.
Fact Sheet 2026-13, issued in August 2026, closes the gap in plain terms. “For tax year 2025, Notice 2025-69 provided relief from that requirement, meaning employees might not see an entry for qualified overtime compensation on their Form W-2 for 2025 even though they earned qualified overtime compensation,” the agency writes in its updated questions and answers. “However, no relief is available for tax years after 2025. Consequently, for tax years after 2025, employees may not consider any amount of qualified overtime compensation in excess of what is reported on Form(s) W-2, box 12, code TT in determining their deduction.”
This is a replacement rather than an amendment. The document’s header says these FAQs “supersede earlier FAQs that were posted in FS 2026-01 on Jan. 23, 2026,” and it now sits among the agency’s published fact sheets as the version in force. Two lines in its own summary of changes describe the shift exactly. It “Deletes information that was applicable solely to the 2025 taxable year.” It “Adds information on the requirement that qualified overtime compensation must be separately reported on Form W-2 to claim the deduction.”
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Box 12, code TT and the $12,500 and $25,000 ceilings
The reporting obligation itself is new this year. “Starting in tax year 2026, payors and employers are required to separately report qualified overtime compensation on Form 1099-MISC (box 14), Form 1099-NEC (box 1d), or, more commonly, Form W-2 (box 12, code TT),” the IRS says. For most employees that means one entry, in one box, on the wage and tax statement that lands in January.
What the entry unlocks is a deduction of up to $12,500 of qualified overtime compensation earned for the year per individual tax return, or $25,000 in the case of a joint return. It is reduced once modified adjusted gross income for the tax year exceeds $150,000, or $300,000 for joint filers. It is available whether the individual itemizes or takes the standard deduction, which is what puts it within reach of households with nothing to itemize.
A deduction is not an exemption. Qualified overtime is not excluded or exempt from gross income, and it stays subject to income tax withholding, Social Security and federal unemployment taxes. The deduction reduces taxable income at filing; it does not make the wages vanish on the way there.
Employers report the whole amount even when it runs past what anyone can deduct. The IRS gives the example directly: “Employer paid Employee qualified overtime compensation of $30,000 in 2026. Employer must include $30,000 on Employee’s Form W-2 using box 12, code TT even though the overall limit on the deduction for qualified overtime compensation is $12,500 ($25,000 in the case of a joint return).” A box 12 figure larger than the cap is not a mistake.
Only the “half” in time-and-a-half is qualified overtime
Qualified overtime compensation is a narrower thing than the overtime line on a pay stub. Only the premium the Fair Labor Standards Act requires counts, and overtime compensation not required by the FLSA is not eligible for the deduction at all.
The agency illustrates it with a worker earning $20 an hour who puts in 50 hours in a week for an employer that pays double time. The overtime pay comes to $400. Only $300 of it was required under the FLSA, so the qualified overtime compensation is $100. That is the premium amount required under 29 USC § 207, or in the IRS’s own phrasing, the “half” amount in the required one and one-half times.
One group is excluded by definition rather than by arithmetic. An employee who owns at least a bona fide 20-percent equity interest in the business and is actively engaged in its management is a bona fide executive, exempt from FLSA overtime, and so has no qualified overtime compensation to report or deduct. This is also a separate provision from the deduction for tips, which has its own rules.
Form W-2c is the fix, and Form 4852 is not
When box 12, code TT is blank or too low, one route exists: the employee must request a Form W-2c from the employer, properly reporting the qualified overtime compensation in that box. Employers have the matching instruction from their side. On discovering an error there, an employer must file Form W-2c with the Social Security Administration and furnish it to the employee as soon as possible.
What happens when the employer will not is the harsh part. In the agency’s words, “if the employer is unwilling or unable to provide the employee with a Form W-2c to correct an omitted or understated amount of qualified overtime compensation, the employee is not entitled to use the omitted or understated amount of qualified overtime compensation to determine the employee’s deduction even if the employee was paid qualified overtime compensation in excess of the amount reported on Form W-2, box 12, code TT by the employer.” The hours were worked and the premium was paid. The deduction still does not exist.
The obvious workaround is closed too. Form 4852, the substitute a taxpayer files when a W-2 never arrives or is wrong, cannot carry this number. The reasoning is technical and absolute: section 225(a) allows the deduction for amounts included on statements furnished pursuant to section 6051(a)(19), and Form 4852 is not furnished under that provision, so any qualified overtime reported on one cannot be used.
The rule runs in both directions. If the amount in box 12, code TT is overstated, the employee may only consider the actual amount of qualified overtime compensation the employer paid. An inflated box does not buy a larger deduction.
Your paycheck will not adjust unless you hand in a new Form W-4
A deduction of this size changes what a household should have withheld during the year, and none of that happens on its own. An employer may not reduce withholding to account for the qualified overtime deduction unless the employee furnishes an updated and valid Form W-4 accounting for the expected deduction. Step 4(b) of the 2026 form is where that estimate goes.
Two conditions are worth confirming before counting on any of it: a valid Social Security number issued before the return’s due date, including extensions, and, for a married employee, a joint return.
FS-2026-13 replaced the January guidance, stripped out the material that applied only to 2025, and left the outcome sitting with whoever completes box 12. For a 2026 return, the check to run is not through a folder of pay stubs. It is whether a number appears next to code TT, and whether it matches the premium you were actually paid.
This article was produced with AI assistance and reviewed by a human editor. Figures are linked to their primary sources; where a claim could not be verified from the public record, we say so.
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