W-2 box 12 code TT is where an employer reports an employee's qualified overtime compensation, and from tax year 2026 it is required. The figure is not total overtime pay. It is the premium half of time and a half that the Fair Labor Standards Act requires, worked out workweek by workweek on the employee's regular rate. The IRS's August 2026 fact sheet says plainly that "no relief is available for tax years after 2025," and that an employee may not deduct more than the employer reports. For a Michigan HVAC, plumbing or electrical shop with hourly technicians, that makes the next three months of payroll records the whole job: the W-2s are due February 1, 2027, and each one now sets the size of a technician's federal deduction and, for the first time, a Michigan one.
In short
- $12,500: the most a single filer can deduct for qualified overtime ($25,000 joint), reduced above $150,000 of modified adjusted gross income (IRS FS-2026-13, 2026).
- No relief after 2025: 2025 W-2s did not need code TT; 2026 W-2s do, and mistakes need a Form W-2c (IRS, 2026).
- 29 million filers claimed the overtime deduction for tax year 2025, Treasury reported in June 2026, averaging more than $3,100 each (Congressional Research Service, 2026).
- 2026 to 2028: the years Michigan's matching state deduction applies, under Public Act 24 of 2025 (Michigan Treasury, 2026).
What code TT reports, and what it does not
The 2026 General Instructions for Forms W-2 and W-3 put it in one line: "only the 'half' portion of 'time-and-a-half' compensation would be reported using code TT." A technician on $30 an hour who works 50 hours in a week earns $450 of overtime pay for the 10 extra hours. The straight-time part is $300. The premium is $150. Code TT for that week is $150.
The IRS fact sheet FS-2026-13 sets the formula: FLSA hours over 40 in a workweek, times one half, times the employee's FLSA regular rate. Each workweek stands alone. The fact sheet defines it as a "fixed and regularly recurring period of 168 hours," with no averaging across two weeks. A 52-hour week followed by a 30-hour week is 12 hours of overtime, not zero.
Three kinds of pay that look like overtime are not in it:
| Pay | In code TT? | Why |
|---|---|---|
| Premium half of time and a half over 40 hours | Yes | Required by FLSA section 7 |
| Straight-time part of overtime hours | No | Ordinary wages |
| Double time beyond time and a half | Only the FLSA minimum | IRS Q16: "the amount minimally necessary" |
| Holiday or weekend premium in a week under 40 hours | No | Not required by the FLSA |
| Overtime for an owner with 20% or more equity who manages | Generally no | Usually exempt from FLSA overtime |
The IRS's own double-time example: a $20 an hour employee works 50 hours and is paid $400 for the overtime at double time. Qualified overtime is $100. The rest is a policy choice the deduction does not reach.
Why getting it wrong costs the technician, not you
The deduction belongs to the employee, but the number belongs to the employer. FS-2026-13 says an employee "may not consider any amount of qualified overtime compensation in excess of what is reported on Form(s) W-2, box 12, code TT." If a shop understates it and does not issue a corrected W-2c, the technician loses the difference, and the IRS says Form 4852, the usual fallback for a missing W-2, cannot be used.
There is a reason the IRS is strict about it. The Congressional Research Service noted in July 2026 that the 29 million returns claiming the deduction for 2025 outnumber estimates of the 10 to 11 million workers who actually worked FLSA overtime, and said some taxpayers may be "claiming the deduction inappropriately." For 2025, when W-2s carried no code, technicians worked the figure out from pay stubs. For 2026 the employer's number is the ceiling.
Michigan adds a state deduction on the same number
Governor Whitmer signed Public Act 24 of 2025 on October 7, 2025. Michigan Treasury's January 2026 notice says it lets taxpayers deduct, for tax years 2026 through 2028, the qualified overtime and qualified tips "allowed to be claimed on the taxpayer's federal income tax return for the same tax year." For 2025, Treasury says, the deductions "will not be available in Michigan." Because the state deduction follows the federal one, the code TT figure on a Michigan technician's W-2 now drives two returns.
Michigan's own overtime rule does not change the federal arithmetic for most shops. MCL 408.414a requires time and a half over 40 hours in a workweek, the same line as the FLSA, with no daily overtime. And MCL 408.420 says section 4a does not apply to an employer already subject to the FLSA's minimum wage provisions. The small employer outside FLSA coverage is the exception: overtime paid there is owed under state law only, and the IRS says overtime not required by the FLSA is not eligible. If you are not sure which side you are on, ask whoever runs your payroll before December, not in January.
Five things to check before December 31
- Write down your workweek. Pick the 168-hour period your payroll uses, Sunday to Saturday or otherwise, and keep it. Overtime is counted inside it and nowhere else.
- Split overtime pay into its two parts in payroll. If your system pays "OT" as one line at 1.5 times, confirm it can report the 0.5 part separately, and test it on one week before you trust it for fifty-two.
- Fold nondiscretionary bonuses into the regular rate. The Department of Labor's Fact Sheet #56C counts production, attendance and safety bonuses in the regular rate. A technician on $28 an hour who works 48 hours and earns a $96 announced on-call bonus has a regular rate of $1,440 divided by 48, which is $30. The premium for 8 overtime hours is $120, not the $112 the base rate alone gives.
- Spread a year-end bonus back over the weeks it covers. Under 29 CFR 778.209 a bonus earned across several weeks is apportioned back to them, and each overtime week gets half the bonus's hourly share times its overtime hours. A safety bonus paid in December for the whole year raises code TT for every overtime week of 2026.
- Separate policy premiums from FLSA overtime. Holiday pay, Saturday premiums and double time for emergency calls are generous. They are not qualified overtime unless the FLSA required them. Keep them on their own pay codes so they do not leak into box 12.
The mistake most shops make at step 3
They pay the bonus correctly and compute the overtime on the base rate. It is the common way small payroll setups work, because the bonus is a separate line added after the hours. The technician is underpaid on overtime under the FLSA, and from this year the W-2 understates code TT as well, so the same error now costs them twice: once in the paycheck and once on their federal and Michigan returns. If a technician asks in February why their code TT looks low, the answer should already be in your records, week by week.
Where this fits
The W-2 rule is new; the problem under it is old. Hours, bonuses and pay that live in separate systems are what make a weekly premium hard to prove. Joining the time records, job records and payroll so each week's figure exists without anyone rebuilding it is the kind of back-office work we build for service businesses. We do not prepare tax returns or give tax advice; your payroll provider or accountant signs off on the W-2. For the other year-end form that changed for contractors, see the 1099-NEC threshold for 2026, and for the wage floor behind next year's rates, Michigan's 2027 minimum wage. More for owners is on our services page.
The deduction is your technician's. The number on the W-2 is yours.
