2026 Employer Guide: Reporting Tips and Overtime Compensation

For tax year 2026, the IRS introduced new reporting requirements for tip income and qualified overtime compensation. Employers may need to collect, track, and report additional information on employee wage statements and certain information returns to support new federal tax deduction provisions. Employers should ensure their payroll systems can support Form W-2 Box 12 Codes TP and TT, understand the use of Treasury Tipped Occupation Codes, and review reporting obligations for affected Forms W-2, 1099-NEC, 1099-MISC, and 1099-K. Early preparation will help reduce year-end reporting challenges and support compliance with IRS requirements.

What's Changing?

The IRS added new reporting codes and data elements to support:

• Qualified cash tips
• Treasury Tipped Occupation Codes
• Qualified overtime compensation under the Fair Labor Standards Act (FLSA)

These reporting elements help taxpayers substantiate deductions that may be available on their individual income tax returns.

Form W-2 Reporting Requirements

New Box 12 Reporting Codes

Employers reporting wages on Form W-2 must use the following new Box 12 codes when applicable:

Code TP - Cash Tips

• Report the total amount of qualified cash tips received and reported by the employee. This amount supports the employee's qualified tips deduction.

Code TT - Qualified Overtime Compensation

• Report qualified overtime compensation attributable to the FLSA overtime premium portion of wages. This amount supports the employee's overtime deduction calculation.

Box 14 Changes

Form W-2 now includes separate Box 14 reporting areas:

Box 14a

Used for general employer-reported information, such as:

• Union dues
• State disability insurance
• Other miscellaneous items

Box 14b

Used to report the applicable Treasury Tipped Occupation Code when Box 12 Code TP is reported.

Forms Affected

In addition to Form W-2, several information returns have been updated to support tip and overtime reporting requirements.

Form 1099-NEC

Payers issuing Form 1099-NEC may need to report qualifying tip-related information when required by IRS guidance.

Common examples include: contract workers receiving tip income through a platform or payment arrangement and independent service providers operating in tipped occupations.

Form 1099-MISC

Form 1099-MISC has been updated to accommodate certain tip-related reporting requirements.

Form 1099-K

Payment settlement entities and businesses receiving payment card or third-party network transaction information may see new reporting elements related to tips and tipped occupations.

Guidance for Employers

For Employees Receiving Tips

Employers should:

• Continue collecting employee-reported tips in accordance with existing payroll procedures.
• Review payroll systems to ensure support for Box 12 Code TP reporting.
• Identify employees working in occupations subject to Treasury Tipped Occupation Code reporting.
• Validate year-end reporting configurations prior to issuing Forms W-2.

Examples of potentially affected industries include:

• Restaurants
• Bars
• Hospitality
• Personal services
• Gaming and entertainment venues

For Employees Receiving Overtime

Employers should review how overtime earnings are tracked throughout the year.

Important Overtime Reporting Information!

Only the qualified overtime premium portion of compensation may need to be reported using Box 12 Code TT. Employers should not assume that all overtime earnings qualify for reporting. Payroll systems should be configured according to IRS guidance and applicable FLSA requirements.

For Employees, employers should:

• Verify overtime calculations.
• Confirm payroll coding for overtime premiums.
• Work with payroll providers to ensure accurate year-end reporting.
• Maintain documentation supporting reported overtime amounts.

For Independent Contractors, employers/payers should:

• Evaluate whether contractors receive compensation that includes tips or tip-related income.
• Review contractor payment arrangements.
• Determine whether reporting is required on Form 1099-NEC, Form 1099-MISC, or Form 1099-K.
• Update systems to capture any new IRS-required reporting elements.

Because contractor reporting rules differ from employee wage reporting, organizations should review applicable IRS guidance before implementing changes.

Best Practices

To prepare for 2026 reporting requirements, employers should:

• Review payroll system capabilities for Codes TP and TT.
• Identify affected employee populations early.
• Coordinate updates with payroll vendors and tax service providers.
• Validate Treasury Tipped Occupation Code requirements.
• Test year-end reporting processes before Form W-2 production.
• Maintain supporting records for tip and overtime amounts reported.
• Monitor future IRS guidance and form instruction updates.

FAQs

Updated: 11/2/2026