If your workers receive tips or overtime pay, their 2026 W-2s must show those amounts. You need to get ready now. Do it before December 31.
Why you should start now
Some pay records cannot be fixed later. If tips and overtime get mixed into regular pay, no one can separate them. This is true even if another company runs your payroll.
What is new this year
A new tax law (the One Big Beautiful Bill Act) passed in July 2025. It gives workers a tax break on some of their pay. They can subtract up to $25,000 of tips. They can also subtract up to $12,500 of the extra pay from overtime ($25,000 for a married couple filing jointly). This works for tax years 2025 through 2028. Income limits may apply.
Workers get these numbers from the W-2 you give them. If your form is wrong, their tax break may be wrong too. How you pay and hold back tax stays the same. Tips and overtime still have income tax, Social Security tax, and Medicare tax taken out. What changes is the tracking. Show these on the W-2:
| What to Report | W-2 Location | Code |
|---|---|---|
| Tips | Box 12 | TP |
| Extra overtime pay | Box 12 | TT |
| Job code for tipped workers | Box 14b | Treasury job code |
Four easy mistakes to avoid
Only some overtime counts. Count hours over 40 in one week for hourly workers. This is overtime that the federal wage law (the FLSA) requires. Leave out overtime that only your state requires. Exclude double pay, holiday pay, and weekend pay under company or union rules, and pay for salaried exempt workers.
Use the right pay rate. Extra overtime pay is based on a "regular rate." That rate often includes shift pay boosts and promised bonuses, not just the hourly wage.
Cash tips need a report. Card tips show up in your card system, but cash tips do not. Workers who get $20 or more in tips in a month must tell you by the 10th of the next month. Use Form 4070 or an online form.
Payroll companies only know what you tell them. Keep tips and overtime pay on their own lines all year.
Your to-do list before December 31
Fixing a mistake in December is simple. Fixing it after W-2s go out means a corrected form, called a W-2c, for each worker.
Ask your payroll company, in writing, to confirm codes TP and TT in Box 12 and the job code in Box 14b.
Give each tipped worker a Treasury tipped job code.
Record cash tips, card tips, and required service charges on separate lines every pay period.
Record extra overtime pay on its own line, and count only overtime the federal law requires.
Print a year-to-date report of tips, overtime pay, and job code for each worker. Check it now.
Fill out your tips and overtime checklist. Send it back with your year-end papers.
A tax credit for some businesses
Some businesses may get a tax credit for much of the Social Security and Medicare tax they pay on workers' tips. Restaurants and bars can claim it. Starting in 2025, barbershops, hair salons, nail shops, skin care shops, and spas can too.
Other payroll tasks
New hires: Get a filled-out Form I-9 and Form W-4 before the first paycheck.
Trump accounts: If you added money to a worker's Trump account (allowed since July 4, 2026), show it in Box 12 with code TA.
Deadline: W-2s are due to workers and the Social Security Administration by February 1, 2027. January 31 is a Sunday.
Ask now, not in March
Have questions? Call us. Mistakes are far easier to fix in December than in March, and a W-2 error means a new form.
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This article is for general information only. It is not financial or tax advice. Talk with a professional about your specific situation.