An employee may deduct only the overtime the employer wrote in box 12 of the W-2, and the IRS says no substitute form fixes an omission
A blank box now costs the whole deduction.
The Internal Revenue Service updated its questions and answers on the deduction for qualified overtime compensation on Thursday, in Fact Sheet FS-2026-13, which supersedes the set posted as FS-2026-01 on 23 January 2026. Much of the document is housekeeping. It adds an index, renumbers questions, makes clarifying edits and strips out material that applied only to the 2025 tax year.
The part that decides who gets the money is in Topic F.
Under section 225(a) of the code, an employee may deduct only the qualified overtime compensation that the employer included on a properly furnished Form W-2. For tax year 2025, Notice 2025-69 provided relief from that requirement, which is why some 2025 forms carry no entry at all. No relief is available for any year after 2025.
The box, and the code
Starting in tax year 2026, employers and payors must report qualified overtime compensation separately, on Form W-2 in box 12 using code TT. The alternative route, Form 1099-MISC box 14 or Form 1099-NEC box 1d, applies in one circumstance only, where a worker is an employee of the employer for Fair Labor Standards Act purposes but is treated as an independent contractor under the Internal Revenue Code. The fact sheet says such cases are rare.
The figure in box 12 is not the deduction. It is the overtime required by the FLSA in excess of the regular rate, and Schedule 1-A of Form 1040 then applies the limits: up to $12,500 of qualified overtime compensation per return, $25,000 on a joint return, reduced once modified adjusted gross income passes $150,000, or $300,000 filing jointly.
When the employer gets it wrong
The fact sheet answers this in both directions, and the two answers are not symmetrical.
Overstatement is capped by reality. An employee may count only what was actually paid, and the worked example is an employee paid $5,000 whose form reports $10,000, who computes the deduction on $5,000.
Understatement is capped by the form. The employee must request a Form W-2c. The corrected figure then governs. Where the employer is unwilling or unable to furnish one, the fact sheet states that the employee is not entitled to use the omitted amount, even though the overtime was required, worked and paid, and its example is an employee paid $10,000 and reported at $5,000 who may deduct on $5,000 only.
Form 4852, the substitute wage statement a taxpayer files when a W-2 never arrives, does not work here. Question 23 says section 225(a) allows the deduction only for amounts included on statements furnished under section 6051(a)(19), and Form 4852 is not one of those.
Two further conditions sit in the same topic. The employee needs a social security number valid for employment, issued before the return is due including extensions. A married employee must file jointly, and where both spouses have qualified overtime, both numbers go on the return.
What the deduction is not
The popular name for this provision is no tax on overtime, and the first answer in the fact sheet says what that does not mean. Overtime is not excluded from gross income. It stays subject to income tax withholding, social security and federal unemployment tax. The deduction is taken on the return, is available whether or not the taxpayer itemises, and reaches only overtime that section 7 of the Fair Labor Standards Act requires, so overtime paid under a contract more generous than the statute does not qualify.
The IRS says the answers were coordinated with the Department of Labor and the Office of Personnel Management. They have not been published in the Internal Revenue Bulletin, so the agency states it will not rely on them to resolve a case, and a taxpayer who relies on them reasonably and in good faith is protected from accuracy-related penalties but not from the law itself.
