Build the 2026 payroll record for W-2 code TT qualified overtime

The 2026 W-2 instructions require code TT in box 12 for total qualified overtime compensation. The IRS describes qualified overtime as compensation required under section 7 of the FLSA that exceeds the employee's regular rate, such as the additional half of time-and-a-half pay. Total pay for overtime hours is a different amount.

Ask the payroll or employment specialist to identify covered employees and qualifying payments. Overtime paid solely under a company policy, state rule or contract should not be assumed to qualify under the federal definition. Preserve the basis for each earning code included in the reporting population.

The reporting requirement does not generally remove overtime from federal income-tax withholding, Social Security or Medicare taxes. Review the code as an information-reporting field, with the ordinary wage-tax treatment still applied under the relevant rules.

The IRS's August 2026 guidance explains that qualified overtime is generally determined by workweek. Preserve hours, the FLSA regular rate, qualifying overtime hours and the premium paid. A payroll export containing only total overtime wages may not isolate the reportable component.

Include regular-rate adjustments caused by nondiscretionary bonuses or other includible compensation. If payroll later pays additional FLSA overtime, connect that amount to the original workweek and the reporting record. A year-end calculation based solely on the employee's current hourly rate can miss those adjustments.

Check multiple-rate employees and unusual pay arrangements with the specialist. The FLSA regular rate can differ from the base rate displayed on an employee profile. Retain the calculation used rather than assuming a single hourly wage applies to every overtime payment.

In a simplified hypothetical week, an employee works five qualifying overtime hours at a $20 regular rate and receives time-and-a-half. Total pay for those hours is $150, while the qualifying additional half-time premium is $50: five hours multiplied by $10. This example assumes no other regular-rate adjustments or special rule.

The IRS says employers report the total qualified overtime paid, even when an employee's personal deduction may be limited. Do not cap code TT at an assumed individual deduction amount or reduce it using the employee's household income. Those personal-return limits are a separate calculation.

Bridge the workweek schedule to the annual payroll report and code TT preview. Identify adjustments, voids and payments processed by an earlier provider. Keep the amount actually paid and reported for the calendar year consistent with the current instructions. Preserve corrections from earlier payroll providers in the annual source file.

Compare the final W-2 output with the approved code TT schedule before release. Explain to employees that the reported amount supports their personal-return review and does not guarantee their deductible amount. Payroll should provide accurate records without calculating a household's final tax benefit.

The IRS's 2026 guidance directs employers to correct an erroneous code TT amount using Form W-2c and furnish the corrected statement to the employee. Keep any correction linked to the underlying weekly calculation and the previously reported annual amount.

Save the earning-code mapping, source hours and reconciliation for 2026. Update the process when later-year instructions change, rather than treating this article's reporting year as permanent. The retained evidence should explain both why a premium qualified and how its annual total was calculated.