How to calculate qualified overtime for W-2 code TT
In short
- Qualified overtime is only the premium the federal Fair Labor Standards Act (FLSA) requires: hours over 40 in a workweek, times half the regular rate.
- For 2026, report the full amount in W-2 box 12, code TT, even above the employee's $12,500 deduction limit. W-2s are due February 1, 2027.
- State overtime, such as California's daily overtime, counts only to the extent it is credited toward the federal requirement.
- An employee can deduct only what code TT shows, and fixing a wrong figure takes a corrected W-2c.
The formula
The IRS sets the amount week by week:
- Workweek: a fixed, recurring 168-hour period that you set. Each week stands alone. You cannot average hours over two or more weeks.
- Regular rate: all pay for the week, including commissions, piece rates and nondiscretionary bonuses, minus the payments the FLSA excludes, divided by the FLSA hours actually worked.
- Who: only employees eligible for FLSA overtime. Exempt employees have no qualified overtime, whatever a state law or contract pays them.
What does not count
Premiums you pay on your own policy, under a state law or under a union contract are not qualified overtime unless the FLSA's crediting rules apply. The IRS lists premiums for hours over 8 in a day, over 35 in a week, and on weekends or holidays as examples to evaluate under 29 USC § 207(e) and (h). Where such a premium is credited toward the federal requirement, the credited portion counts, plus any extra FLSA premium paid.
If you pay more than the FLSA requires, such as double time, only the amount the FLSA requires counts. Hospitals and some residential care facilities that use the 8 and 80 method count the premium actually paid under that method.
Two worked examples
The IRS's double-time example. An employee earning $20 an hour works 50 hours and is paid double time for the 10 overtime hours: $400 for those hours. The FLSA required $300 ($200 straight time plus a $100 premium), so qualified overtime is $100.
A California week, illustrated. The same $20 employee works 10-hour days. California pays time and a half for each hour over 8 in a day.
| Week | Hours | California premium paid | Qualified overtime (code TT) |
|---|---|---|---|
| Four 10-hour days | 40 | $80 | $0 |
| Five 10-hour days | 50 | $100 | $100 |
| Total | 90 | $180 | $100 |
Illustrative only: a $20 rate, no bonuses, and the daily premium credited toward federal overtime in the 50-hour week. In the 40-hour week nothing is over 40, so nothing qualifies.
A payroll setup that sends every "overtime" earning to code TT would report $180 here, and more if it counted the full overtime pay rather than the premium.
If the figure is wrong
- You must file a corrected Form W-2c with the Social Security Administration and give one to the employee as soon as possible. Incorrect W-2s can draw information reporting penalties.
- If code TT is too high, the employee can still deduct only the overtime actually paid.
- If code TT is too low, the employee has to ask you for a W-2c to claim the rest. The IRS says no relief applies for tax years after 2025.
Before your W-2s go out
- Confirm which employees are eligible for FLSA overtime.
- Group hours by your fixed workweek, not by pay period.
- Separate state, union and policy premiums from the federal premium.
- Spread bonuses and commissions back into the weeks they were earned.
- Add overtime paid through a previous payroll provider or off-cycle runs.
Not sure your code TT figures are right?
We check them against your time punches and pay, and list every employee whose figure is off, before W-2s go out.
See the W-2 check