Quick Summary
The updated 2026 Form W-2 adds Box 12 codes for qualified tips, qualified overtime compensation and employer Trump account contributions, and splits Box 14 to report Treasury Tipped Occupation Codes. The new fields begin with tax year 2026, and the deductions remain income tax deductions, not blanket payroll-tax exemptions.
The IRS has released the updated Form W-2 for 2026, which introduces new reporting requirements for qualified tips and overtime following the implementation of the One Big Beautiful Bill Act (OBBBA). The changes facilitate the federal income tax deductions for qualified tips and qualified overtime compensation, both available for tax years 2025 through 2028. Importantly, the deductions began in 2025, but the new W-2 reporting fields begin with tax year 2026, which employees should receive in early 2027.
Eligible taxpayers may deduct up to $25,000 annually in qualified tips and up to $12,500 ($25,000 joint) in qualified overtime compensation. Both deductions begin phasing out when modified adjusted gross income exceeds $150,000, or $300,000 for joint filers, and are available whether taxpayers itemize or take the standard deduction. Note that taxpayers must meet the applicable Social Security number requirements, and married taxpayers must file jointly to claim either deduction.
Qualified tips generally include voluntary cash and charged tips, including tips received through tip-sharing arrangements, and excluding mandatory service charges.
Qualified overtime generally means only the premium above the regular pay rate required by the federal Fair Labor Standards Act, such as the extra “half” in time-and-a-half pay, rather than the entire overtime payment.
Two new Box 12 codes help identify the relevant amounts. Code TP reports the total cash tips reported to the employer. Code TT reports total qualified overtime compensation, not all wages earned during overtime hours. Employees use these amounts when determining their deductions, but the reported amounts do not automatically equal the deductions allowed after eligibility rules and limitations are applied.
The form also divides the former Box 14 into Box 14a, “Other,” and new Box 14b, “Treasury Tipped Occupation Code(s).” Box 14a reports information that in prior years was reported in Box 14 – Other.
Box 14b identifies the occupation in which tips were earned, helping employees determine whether those tips meet the occupation requirement for the deduction. Employers reporting cash tips under Code TP must also report the applicable occupation code in Box 14b. Employee eligibility for the deduction generally requires tips to be earned in a qualifying occupation. The list of over 70 Treasury Occupation Codes can be found here.
Employers should coordinate with payroll providers to capture tip amounts, qualifying overtime premiums and the appropriate occupation codes, while employees should review their W-2s and retain supporting pay records. Despite the popular “no tax on tips” and “no tax on overtime” labels, these provisions are strictly income tax deductions, not blanket payroll-tax exemptions. Tips and overtime generally remain subject to federal income tax withholding and Social Security and Medicare taxes.
Other Changes
The 2026 W-2 now includes a new Box 12 code to report the employer’s contributions to an employee’s (or their dependent’s) Trump account. These contributions will be reported as Code TA in Box 12. Additionally, as required by the State Paid Family and Medical Leave (PFML) Act, employee contributions and employer voluntary payments for wage replacement for time off related to nonoccupational injuries, illnesses, or medical conditions, or to care for a family member with a serious health condition must now be included as wages on the employee’s Form W-2.
Schneider Downs Tax Advisors run one of the largest regional tax practices in the country, pairing deep technical knowledge with a personal focus on every client. From OBBB provisions like the new W-2 reporting for tips and overtime to R&D credits and state and local tax, we turn complex change into practical, implementable strategy. To learn more, visit our Tax Services page or contact us, or email us directly.
