Why is the code TT amount smaller than my total overtime pay?

Because only the premium counts. For an overtime hour paid at time-and-a-half, the first 1.0x is ordinary wages and only the extra 0.5x is qualified overtime compensation. The IRS W-2 instructions describe it as the "and-a-half" portion of time-and-a-half pay. Overtime that only state law requires (like California daily overtime in a week under 40 hours) is also excluded.

How do I claim the no tax on overtime deduction?

You claim it on your federal income tax return. The deduction is up to $12,500 ($25,000 married filing jointly) of qualified overtime compensation per year, and it phases out above $150,000 of income ($300,000 married filing jointly). It applies for tax years 2025 through 2028.

Why is there no code TT on my 2025 W-2?

The IRS did not change the 2025 W-2. Employers were not required to report qualified overtime for 2025, and IRS Notice 2025-62 waived the related reporting penalties. For 2025 taxes, the IRS told employees to estimate their own qualified overtime from pay stubs using the methods in Notice 2025-69, including dividing total time-and-a-half overtime pay by 3.

Is dividing my overtime pay by 3 accurate?

Often, but not always. Dividing by 3 works when every overtime hour was paid at exactly time-and-a-half the correct rate. IRS Notice 2025-69 itself says the estimate underestimates qualified overtime compensation when a nondiscretionary bonus raises the regular rate, because bonuses, commissions, and shift differentials legally increase the rate overtime is computed on.

What if the code TT amount on my W-2 looks wrong?

Ask your payroll or HR department how the number was computed. A quick check: if you were paid plain time-and-a-half with no bonuses, code TT should be roughly one-third of your total overtime pay. If you earned nondiscretionary bonuses or shift differentials, the correct amount is usually more than one-third, because those payments raise the rate the overtime premium is computed on. If the W-2 is wrong, your employer can issue a corrected W-2 (Form W-2c).

What Does Code TT on My W-2 Mean? Box 12 Qualified Overtime, Explained

Q: Does code TT apply to salaried exempt employees?

No. Overtime paid to employees who are exempt from federal (FLSA) overtime rules is not qualified overtime compensation, regardless of state law or employer policy, so those employees should not see a code TT amount.

By Nick Peterson, software engineer; I build payroll-audit computation. Educational information, not legal or tax advice. Every claim links a primary source. Updated September 1, 2026.

Payroll or HR reader? This page is written for employees. For the calculation rules, exclusion tables, and a pre-January dry run, see the employer's guide to code TT.

What does code TT on my W-2 mean?

Code TT in Box 12 of your W-2 is your "qualified overtime compensation" for the year: the extra-half portion of the time-and-a-half overtime pay that federal law required. It is the number you use to claim the new federal "no tax on overtime" deduction on your tax return (IRS Q&A). The 2026 IRS W-2 instructions created the code, and it appears for the first time on W-2s for tax year 2026, the ones you receive in January 2027.

Why is there a new code on my W-2?

The One Big Beautiful Bill Act (OBBBA, July 2025) created a federal income-tax deduction for overtime pay, often called "no tax on overtime," covering tax years 2025 through 2028 (IRS Q&A). To claim it, you need to know your qualified overtime amount, so the IRS added Box 12 code TT to the W-2 and made employer reporting mandatory starting with tax year 2026 (2026 W-2/W-3 instructions). The deduction sunsets after 2028.

Why is the TT amount smaller than my total overtime pay?

Only the premium counts. "Qualified overtime compensation" is defined as overtime required by section 7 of the federal Fair Labor Standards Act (FLSA) that is in excess of your regular rate (IRS Notice 2025-69 §II.B). In plain terms, for an overtime hour paid at time-and-a-half:

The first 1.0× is ordinary wages. It is not in Box TT.
Only the extra 0.5× (the "half" in time-and-a-half) is qualified. The IRS instructions call it "the 'and-a-half' portion of time-and-a-half compensation" (2026 W-2/W-3 instructions).

There is a second filter: only overtime federal law requires counts. Overtime that only your state requires, such as California daily overtime in a week under 40 hours, or the top half of California double time, is excluded (Notice 2025-69). So if you work in California, your TT number can be much smaller than your total overtime pay.

Rule of thumb: if all your overtime was federal time-and-a-half, expect Box TT to be about one-third of your total overtime pay, and somewhat more than one-third if you earn bonuses (explained below).

How do I claim the deduction?

You claim it on your federal income tax return (Form 1040). Per the IRS Q&A:

Cap: up to $12,500 of qualified overtime compensation per year ($25,000 if married filing jointly).
Phase-out: the deduction shrinks once your modified adjusted gross income passes $150,000 ($300,000 married filing jointly).
Years: tax years 2025 through 2028.

The deduction does not change your paycheck during the year. It reduces your federal taxable income when you file.

What about my 2025 taxes? There's no TT on my 2025 W-2.

That's expected. Tax year 2025 was a transition year: the W-2 was not modified, employers were not required to report the amount, and IRS Notice 2025-62 waived the related reporting penalties for 2025. Instead, the IRS told employees to estimate their own qualified overtime from pay stubs using the methods in Notice 2025-69.

The simplest of those methods: take your total time-and-a-half overtime pay for 2025 and divide by 3. (An overtime line paid at 1.5× is three units of 0.5×, so one-third of it is the premium.)

One caution from the Notice itself: the ÷3 estimate "would result in underestimating the employee's qualified overtime compensation (for example, because the individual's regular rate is increased by a nondiscretionary bonus)" (Notice 2025-69, method (E)). If you earn regular bonuses, ÷3 likely understates your deduction.

I get bonuses. Why does that change my overtime number?

Federal law computes your overtime premium on your regular rate of pay, and the regular rate includes more than your hourly wage: nondiscretionary bonuses (anything promised or expected, like attendance or production bonuses), commissions, and shift differentials all count (DOL Fact Sheet #56A; 29 CFR 778.110).

Example: you earn $20/hour, work 50 hours in a week, and get a $200 attendance bonus. Your regular rate that week is ($1,000 + $200) ÷ 50 = $24/hour, not $20. The overtime premium is 0.5 × $24 × 10 hours = $120. A system that ignores the bonus computes $100. The $20 difference is both overtime you were underpaid and qualified overtime missing from your Box TT. You can check your own week's numbers in the free TT calculator.

What if the code TT amount looks wrong?

Ask your payroll or HR department how the number was computed. Two quick checks:

Plain hourly, no bonuses: Box TT should be roughly one-third of your total time-and-a-half overtime pay for the year. (Lower is normal if some of your overtime was state-law-only, like California daily overtime.)
Bonuses, commissions, or shift differentials: the correct amount is usually more than one-third of your overtime line, because those payments raise the rate the premium is computed on (Notice 2025-69; 29 CFR 778.110).

If the W-2 is wrong, your employer can issue a corrected W-2, Form W-2c (W-2/W-3 instructions). And note what an understated TT often means: if the regular rate behind it was wrong, the overtime pay itself was likely short too.

I'm salaried. Will I get a code TT amount?

If you're exempt from federal (FLSA) overtime rules, no. Overtime paid to FLSA-exempt employees is not qualified overtime compensation "regardless of applicable State law provisions or other circumstances" (Notice 2025-69). The same goes for overtime your employer pays only by contract or policy: if federal law didn't require it, it isn't in Box TT.

Want to check a week of your own pay? The free TT calculator shows the qualified-overtime math on your numbers, step by step. For the full rules, see the employer's guide to code TT or browse all guides in the Learn hub.

Sources: IRS Q&A: qualified overtime deduction · IRS Notice 2025-69 · IRS Notice 2025-62 (IRB 2025-48) · 2026 General Instructions for Forms W-2/W-3 · DOL Fact Sheet #56A · 29 CFR 778.110

Not legal or tax advice. Written by an engineer who builds the computation; methodology and test cases are public. Attorney review pending. This page will carry the reviewer's byline when it does.