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Box 12, code TT on the 2026 Form W-2 holds the premium, not the overtime pay. IRC §225(c)(1) defines qualified overtime compensation as "overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed." Qualified tips are excluded (§225(c)(2)).
IRS Fact Sheet 2026-13 (6 August 2026) gives the computation for each workweek as FLSA hours worked over 40, times one-half, times the FLSA regular rate (FS-2026-13 Q12). Each workweek is a fixed, recurring 168-hour period and stands alone; there is no averaging across weeks (Q13). Only the amount minimally necessary to satisfy 29 U.S.C. §207 qualifies (Q16).
Four examples follow. They are not of one kind, and each is labeled. Two are published worked examples: FS-2026-13 Q16 and 29 CFR 778.110(b). The tipped case is our arithmetic from 29 CFR 531.60, which states the rule and publishes no figures. The paid-leave case is a test case from our own engine specification, because 29 CFR 778.218(a) also states its rule without figures.
| Inputs | Step | Result |
|---|---|---|
| $20.00 an hour; 50 hours worked | Hours over 40: 50 − 40 | 10 |
| Overtime paid at double time | 10 × $40.00 | $400.00 |
| What the FLSA required for those hours | 10 × $20.00 straight time + 10 × 0.5 × $20.00 premium | $300.00 ($200.00 + $100.00) |
| Paid beyond the FLSA | $400.00 − $300.00 | $100.00, not qualified |
| Qualified overtime compensation | 10 × 0.5 × $20.00 | $100.00 |
A nondiscretionary bonus goes into the regular rate (29 CFR 778.208).
| Inputs | Step | Result |
|---|---|---|
| $12.00 an hour; 46 hours worked | Straight-time earnings: 46 × $12.00 | $552.00 |
| $46.00 production bonus for the week | $552.00 + $46.00 | $598.00 |
| Regular rate: $598.00 ÷ 46 | $13.00 | |
| Hours over 40 | 6 | |
| Total wage the regulation states: 46 × $13.00 + 6 × $6.50 | $637.00 | |
| Qualified overtime compensation | 6 × 0.5 × $13.00 | $39.00 |
The regulation writes the same $637.00 a second way: 40 hours at $13.00 plus 6 hours at $19.50.
The regular rate of a tipped employee includes the tip credit (29 CFR 531.60). The figures use the federal cash wage and tip credit.
| Inputs | Step | Result |
|---|---|---|
| $2.13 cash wage; $5.12 tip credit | Regular rate: $2.13 + $5.12 | $7.25 |
| 50 hours worked | Hours over 40 | 10 |
| Qualified overtime compensation | 10 × 0.5 × $7.25 | $36.25 |
Holiday, vacation and sick pay are not compensation for hours of employment, and "no part of such payments may be credited toward overtime compensation due" (29 CFR 778.218(a)).
| Inputs | Step | Result |
|---|---|---|
| $22.00 an hour; 40 hours worked | Hours worked over 40: 40 − 40 | 0 |
| 8 hours of paid holiday; the register counted 48 paid hours and priced the last 8 at time and a half | 8 × $22.00 × 1.5 | $264.00 paid; not hours worked |
| Qualified overtime compensation | 0 × 0.5 × $22.00 | $0.00 |
Two shortcuts recur in year-end work. One takes a third of the overtime pay line, on the reasoning that the premium is one part in three of time and a half. The other multiplies half the hourly rate printed on the stub by the paid hours over 40. The table runs both against the four examples above. The arithmetic is ours.
| Example | Premium as worked | One-third of overtime pay | 0.5 × stub rate × paid hours over 40 |
|---|---|---|---|
| 1. Double time | $100.00 | $133.33 ($400.00 ÷ 3) | $100.00 (0.5 × $20.00 × 10) |
| 2. Bonus | $39.00 | $37.00 on a stub that prices overtime at 6 × $18.00 = $108.00 and adds the $3.00 bonus true-up as its own line ($111.00 ÷ 3) | $36.00 (0.5 × $12.00 × 6) |
| 3. Tipped | $36.25 | $19.18 on the cash overtime line ($57.55 ÷ 3) | $10.65 (0.5 × $2.13 × 10) |
| 4. Paid leave | $0.00 | $88.00 if the $264.00 is carried as overtime ($264.00 ÷ 3) | $88.00 (0.5 × $22.00 × 8) |
The one-third shortcut is right only when the overtime line is priced at exactly one and a half times the full regular rate, bonus included. Double time pushes it over by a third of the excess. A stub that prices overtime on the hourly rate and trues the bonus up separately lands $2.00 short. In the tipped case the cash line carries 10 × ($10.875 − $5.12) = $57.55, because the tip credit covers part of each overtime hour, and a third of it is $19.18.
The stub-rate shortcut is right only when the stub rate is the regular rate and every paid hour was worked. It drops the bonus ($3.00 short in example 2), prices a tipped premium on the cash wage ($25.60 short in example 3), and counts leave as hours worked ($88.00 over in example 4).
Neither shortcut can see a workweek boundary. A semi-monthly register holds 24 pay periods against 52 workweeks, and Q13 measures each workweek on its own.
The statute allowed qualified overtime to be approximated only for periods before 1 January 2026 (Pub. L. 119-21 §70202(h); Notice 2025-69, which set out the 2025 self-computation methods). No approximation authority exists for 2026. The 2025 penalty relief for not separately accounting for qualified overtime on W-2s, in Notice 2025-62, says: "This relief applies only for taxable year 2025." No 2026 relief had been issued when our rules reference was last verified, on 4 September 2026.
For 2026, each workweek's premium is computed from hours worked and the regular rate, and code TT reports the total, even above the $12,500 deduction limit (FS-2026-13 Q10).
The Qualified Overtime Kit, TY2026 edition, is an Excel workbook built to the 2026 Form W-2 instructions for reconciling box 12, code TT; the free spot check works one employee's workweek.
This product is a calculation and documentation tool. It is not tax, legal, accounting, or payroll advice, and it is not a substitute for advice from a qualified professional who has reviewed your client's specific facts. Overtime, regular-rate, and tip-credit rules vary by state and by the terms of employment; you are responsible for confirming the rules that apply to each client and for reviewing all output before it is used.
Tie-Out Press is not affiliated with, endorsed by, or connected to the Internal Revenue Service, the Department of the Treasury, the Department of Labor, or any government agency. No government agency has reviewed or approved this product.
No guarantee is made regarding the accuracy of any output for a particular set of facts, the treatment of any return by any tax authority, or the avoidance of penalties, audits, or assessments.
Statutory and regulatory references are current as of 2 October 2026 and are maintained in the change log.
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Tie-Out Press publishes the Qualified Overtime Kit, which reconciles the qualified overtime figure an employer reports in box 12 of the W-2, under code TT. It is a calculation tool, not tax or legal advice.
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