The IRS has released a draft version of the 2026 Form W-2, Wage and Tax Statement, which adds new fields to accommodate the tax exemptions on tips and overtime income from the “One Big Beautiful Bill Act.”
On July 4, 2025, President Trump enacted the One Big Beautiful Bill Act, introducing significant changes to tax law through new above-the-line deductions that will fundamentally alter Form W-2 reporting requirements. The legislation establishes tax deductions for “qualified tips” and “qualified overtime compensation,” creating new compliance obligations for employers nationwide.
The Act introduced new above-the-line tax deductions for “qualified tips” and “qualified overtime compensation.” These deductions require employers to report specific information on Form W-2: (a) cash tips reported by employees and their qualifying tipped occupations, and (b) qualified overtime compensation amounts. The IRS announced on August 7, 2025, that Form W-2 would not change for tax year 2025, providing no guidance on compliance with the new reporting requirements.
A week later, according to analysis from Law Firm Litter, the IRS released a draft 2026 W-2. The draft instructions specify that employers should report “qualified tips” in Box 12 using code “TP” and “qualified overtime compensation” in Box 12 using code “TT.” The revised form adds Box 14b for reporting the employee’s qualifying occupation through a “Treasury tipped occupation code.” The IRS noted this is an “early release draft” subject to further revisions before finalization.
Employers should review their current payroll systems and processes to ensure they can properly identify, track, and report qualified tips and overtime compensation in accordance with both the new tax requirements and existing labor law obligations.
Let’s examine some of the potential changes for the 2026 W-2, Wage and Tax Statement, as indicated in the recently released draft form.
New Box 12 Codes
The 2026 draft W-2 employee instructions introduce three new codes for Box 12, which report various compensation and benefits amounts:
- TA: Employer contributions to Trump accounts
- TP: Qualified tips totals for calculating the qualified tips deduction on Schedule 1-A (Form 1040)
- TT: Qualified overtime compensation totals for calculating the qualified overtime compensation deduction on Schedule 1-A (Form 1040)
The new law automatically enrolls babies born from January 1, 2025, through December 31, 2028, in Trump accounts with an initial $1,000 federal contribution. Annual contributions to these accounts are limited to $5,000 in after-tax funds (contributions are nondeductible), with inflation indexing beginning in 2027.
Conclusion
We anticipate more guidance from the IRS in the coming weeks. For example, by October 2, 2025, the IRS is required to publish a list of “qualifying occupations” for the “no tax on tips” deduction, which will likely include corresponding “codes” for Box 14b of the W-2. The IRS also committed to providing guidance “in the coming months” on the “reasonable method” employers can use to “approximate” qualified tips and overtime compensation for the 2025 tax year. Finally, the IRS announced that it will provide “transition relief” for employers subject to these new reporting requirements for the 2025 tax year.
