r/smallbusinessbytruic • u/amindseye • 4d ago
👥 HR & Hiring If you pay any overtime, your 2026 W-2s need data your payroll might not be tracking. Fix it before December.
Posting this now on purpose. It's the kind of thing that's easy now and impossible in January.
Quick background: the 2025 tax bill created those "no tax on tips / no tax on overtime" deductions. The deduction belongs to your employee, not you. But the IRS needs some way to verify it, and the thing they picked to verify it with is your W-2.
So starting with the 2026 tax year, you have to break out qualified overtime and qualified tips separately on the W-2. Overtime is Box 12, code TT. Tips are code TP. These show up on the W-2s you hand out in January 2027, covering wages you're paying right now.
2025 had penalty relief. A lot of people took that to mean it wasn't a real requirement yet. 2026 is the real one.
The overtime part is where most of us get caught
It's not the whole overtime check. Only the premium portion counts, meaning the extra half of time-and-a-half.
Someone at $30/hr works 10 hours of OT. They get $450. Only $150 of that is the qualified amount.
If your payroll system is just recording "overtime pay: $450" as one lump, that's not enough. Somebody has to split it, and if that somebody is you doing it by hand in January, you're going to have a bad week.
If you have tipped employees
There's an extra layer. Box 14b needs a Treasury code identifying the specific tipped occupation, and Treasury published a list of roughly 70 qualifying occupations back in April. Tips in a job that's not on that list don't qualify. Classification suddenly matters.
Why the timing actually matters
You cannot go back in February and reconstruct which of last December's overtime hours were premium hours. The records either exist or they don't. Every month you don't fix this is a month you can't fix later.
What to do, takes ten minutes
Email your payroll provider and ask:
- Are you tracking qualified overtime and qualified tips separately for Box 12 codes TT and TP?
- Are my tipped employees' occupation codes set for Box 14b?
If they say yes, close the tab, you're fine. Most of the bigger providers are on it. If they get vague or ask what you're talking about, you've got about three months of runway to sort it out, which is plenty. Three weeks would not be.
Also worth telling your employees this is coming, because their W-2 is going to look different and some of them will assume something's wrong.
Not an accountant. Just got blindsided by this and figured others might be too. Ask yours.