W-2 Box 12 Codes TP & TT: Complete Guide for 2026

What Are W-2 Box 12 Codes TP and TT?

Box 12 on Form W-2 is where employers report special compensation categories using letter codes. The IRS already uses codes like D (401k deferrals), DD (health insurance costs), and W (HSA contributions). For the 2026 tax year, two new codes join the list:

• Code TP — Total amount of qualified tips you received during the year that are eligible for the "No Tax on Tips" deduction under the OBBBA
• Code TT — Total amount of qualified overtime compensation you earned during the year that is eligible for the "No Tax on Overtime" deduction under the OBBBA

These codes exist so you can transfer the amounts directly to Schedule 1-A when filing your federal return. No more guesswork, no more digging through pay stubs — the numbers are on your W-2.

2025 vs 2026: What Changed in W-2 Reporting

The One Big Beautiful Bill Act (OBBBA) was signed into law in 2025, making the "No Tax on Tips" and "No Tax on Overtime" deductions effective for tax year 2025 and beyond. However, the IRS did not require employers to use codes TP and TT on 2025 W-2 forms. That created a gap:

• Tax year 2025 (W-2s issued in early 2026): employers were not required to separately report qualified tips or overtime using Box 12 codes. Workers had to calculate their own qualified amounts from pay stubs and tip records.
• Tax year 2026 (W-2s issued in early 2027): employers must report qualified tips as Code TP and qualified overtime as Code TT in Box 12. This mandatory reporting simplifies filing and reduces errors.

If you are filing your 2025 return right now and your W-2 does not show TP or TT codes, that is expected. See the section below on how to calculate these amounts yourself.

Code TP: Qualified Tips Explained

Code TP reports the total dollar amount of tips you received that qualify for the "No Tax on Tips" deduction. Not all tips automatically qualify — there are occupation and income requirements.

What Counts as Qualified Tips

• Cash tips, credit card tips, tip pool distributions, and digital tips (Venmo, Cash App) received in the course of your qualifying occupation
• Tips reported to your employer (Form 4070 or equivalent) and tips you reported directly on your return
• Allocated tips (W-2 Box 8) if they apply to a qualifying occupation

What Does Not Count

• Tips earned in an occupation that does not customarily and regularly receive tips
• Service charges automatically added to a bill — these are wages, not tips, unless the customer had discretion over the amount
• Tip amounts above the $25,000 annual cap

The $25,000 Cap

The maximum tip deduction is $25,000 per year regardless of filing status. If your Code TP amount exceeds $25,000, you can only deduct $25,000 on Schedule 1-A. The remainder is taxed as ordinary income.

Occupation Requirement and Box 14b

Starting with 2026 W-2s, employers must also include an occupation code in Box 14b to verify that you work in a tip-eligible occupation. This code corresponds to the IRS list of 68+ qualifying occupations. Without a valid occupation code, the IRS may question your TP deduction during processing.

Code TT: Qualified Overtime Explained

Code TT reports the total qualified overtime compensation you earned during the year. This amount corresponds to the "No Tax on Overtime" deduction on Schedule 1-A Part III.

FLSA Definition of Overtime

Qualified overtime is defined under the Fair Labor Standards Act (FLSA). It covers pay for hours worked beyond 40 in a workweek by non-exempt employees:

• You must be classified as a non-exempt employee under the FLSA — most hourly workers qualify, most salaried exempt employees do not
• Code TT includes the overtime premium — the additional 0.5x above your regular rate — not the full 1.5x pay for overtime hours
• State-specific overtime rules (e.g., California daily overtime) may or may not be included — follow the amount your employer reports in Code TT

Deduction Cap and Phase-Out

The "No Tax on Overtime" deduction cap depends on your filing status:

• Single filers: up to $12,500 deduction
• Married filing jointly: up to $25,000 combined deduction

Income phase-outs apply: the deduction begins to reduce for single filers with income above $150,000 and MFJ filers above $300,000. Use our Overtime Tax Calculator to see your exact savings after the phase-out.

How to Use TP/TT Codes on Schedule 1-A

Once you have your W-2 with codes TP and TT, transferring the amounts to Schedule 1-A is straightforward:

Step 1: Locate Codes TP and TT on Your W-2

Look at Box 12 on your W-2. Each entry has a code letter(s) and a dollar amount. Find the rows labeled TP and TT. If you have multiple W-2s from different employers, add the TP amounts together and the TT amounts together.

Step 2: Enter Code TP on Schedule 1-A Part II

On Part II, enter the lesser of your total Code TP amount or $25,000. The form will prompt you to confirm your occupation qualifies for the tip deduction.

Step 3: Enter Code TT on Schedule 1-A Part III

On Part III, enter the lesser of your total Code TT amount or the applicable cap ($12,500 single / $25,000 MFJ). If your income triggers the phase-out, the form includes a worksheet to calculate the reduced amount.

Step 4: Transfer the Total to Form 1040

Schedule 1-A totals all four OBBBA deductions on its final line. This amount flows to Schedule 1, Part II, and ultimately reduces your AGI on Form 1040, Line 11.

What If Your 2025 W-2 Doesn't Show These Codes

If you are filing your 2025 tax return (in spring 2026), your W-2 almost certainly will not include codes TP or TT. You are still entitled to the deductions — you just need to calculate the amounts yourself.

Calculating Qualified Tips Without Code TP

• Start with W-2 Box 7 (Social Security tips) as a baseline for reported tips
• Add any unreported cash tips you tracked in a daily tip log or IRS Form 4070A
• If you received allocated tips (Box 8), include those as well
• Confirm your occupation qualifies by checking the IRS occupation list
• Cap the total at $25,000

Calculating Qualified Overtime Without Code TT

• Gather all pay stubs from 2025 that show overtime hours and overtime pay
• Calculate the overtime premium: overtime hours multiplied by 0.5x your regular hourly rate
• Sum the overtime premium across all pay periods for the year
• Cap at $12,500 (single) or $25,000 (MFJ) and apply the income phase-out if applicable

Common Mistakes to Avoid

1. Confusing Box 7 with Code TP

W-2 Box 7 reports tips subject to Social Security tax, which is not identical to qualified tips for the OBBBA deduction. Box 7 may include tips from non-qualifying occupations and excludes certain unreported cash tips. When Code TP is available on your 2026 W-2, use Code TP — not Box 7 — as the source for Schedule 1-A Part II.

2. Not Understanding Phase-Out Limits

Both deductions phase out for higher earners. If your total income exceeds $150,000 (single) or $300,000 (MFJ), your deduction is gradually reduced to zero. Entering the full Code TP or TT amount without applying the phase-out will result in an incorrect return.

3. Double-Counting Tips Across Multiple W-2s

If you worked two tipped jobs, each employer issues a separate W-2 with its own Code TP amount. Add them together — but the combined total is still capped at $25,000. Do not enter the same tips twice if one employer also reported allocated tips in Box 8 that overlap with your Code TP figure.

4. Claiming Overtime as an Exempt Employee

The "No Tax on Overtime" deduction applies only to non-exempt employees covered by the FLSA. If you are a salaried exempt employee and your employer mistakenly reports overtime-like pay under Code TT, you are still ineligible. The IRS cross-references FLSA classification during audits.

5. Ignoring the Occupation Code in Box 14b

For 2026 W-2s, the occupation code in Box 14b is required to validate your Code TP deduction. If your employer omits it or enters an incorrect code, contact your payroll department immediately. Filing without a valid occupation code may delay your refund.