Ask a payroll register how much overtime an employee earned in 2026 and it answers the way it always has: the total of the overtime earning codes, one line per employee. For the 2026 Form W-2, that line is the wrong number, and it is wrong by design.
Box 12, code TT reports qualified overtime compensation, which is defined as overtime compensation “required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate.” [26 USC 225(c)(1)] Two limits sit in that sentence: only what the FLSA required, and only the part above the regular rate. The 2026 General Instructions for Forms W-2 and W-3 put it plainly: only the “half” portion of “time-and-a-half” compensation is reported using code TT.
For an employee paid time-and-a-half on a single hourly rate for hours over 40, with no other pay in the week, the arithmetic is a division. Overtime earnings of $4,812 carry $1,604 of code TT—one-third. That is the easy case, and it is the only case where the register and the box agree once the line is divided by three. The rest of this article is about the weeks where they do not.
Start from the premium
FS-2026-13, the IRS fact sheet of August 2026 that carries the employer computation rules, states the formula in Question 12: FLSA hours worked in excess of 40 in the workweek, times one-half, times the employee’s FLSA regular rate. The overtime line on a register is the whole payment for those hours at whatever multiple the employer uses. Only the premium is reported, and only the premium the FLSA required.
Q16 of the fact sheet works the example. An employee at $20 an hour works 50 hours and the employer pays double time: $400 for the 10 overtime hours. Section 7 required $300, which is $200 of straight time plus $100 of premium at half the regular rate. Code TT is $100. The other $100 is overtime compensation the FLSA did not require, and Q1 says overtime not required by the FLSA is not eligible for the deduction. At time-and-a-half, the gap between the register’s overtime line and the reportable figure is two-thirds of the line. At double time, it is three-quarters.
Premiums for hours the FLSA does not treat as overtime count only to the extent they were credited toward the Section 7 obligation. Q16 names them: premiums for hours beyond eight in a day, beyond 35 in a week, or on a weekend or holiday, whether paid under a state law, a collective bargaining agreement, or the employer’s own policy. 29 USC 207(h)(2) is the statute behind Q12’s second sentence. A four-day week of 10-hour days under a daily overtime rule produces eight hours of daily premium and no hours over 40, and on Q12’s formula that week has nothing to report.
Hours paid are not hours worked
The formula counts FLSA hours worked. Q14 of the fact sheet says the regular rate and the amount due cannot be determined without them and sends the reader to the Department of Labor’s guidance on what counts. Pay for a holiday, a vacation day, or a sick day is pay for a period when the employee is not at work. 29 CFR 778.218(a) says such payments are not made as compensation for hours of employment, may be excluded from the regular rate, and cannot be credited toward overtime due. The hours behind them are not hours worked.
A payroll configured to pay overtime after 40 paid hours pays a premium the FLSA never required whenever a holiday falls in the week. Thirty-six hours worked plus an eight-hour paid holiday is 44 hours paid and 36 worked. The four hours of “overtime” carry $40 of premium at a $20 rate, and code TT for the week is zero. The register’s overtime column has $40 in it, the box has nothing, and both are right.
The workweek is not the pay period
Q13: a workweek is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods, beginning on any day and at any hour the employer establishes, and each workweek stands alone, with no averaging over two or more. 29 CFR 778.104 and 778.105 are the regulations it restates.
A semi-monthly register cannot see it. An employee who works nine hours a day, Monday to Friday, in a week where Monday to Wednesday fall in the first period and Thursday and Friday in the second, shows 27 hours in one period and 18 in the next. Neither period reaches 40. The workweek reaches 45, and five hours of overtime are owed for it: $60 of premium at $24 an hour. If payroll computed overtime on the pay period, that premium was never paid, which is a wage-and-hour problem before it is a reporting one. Code TT reports qualified overtime compensation paid [Q10 uses the word, and so does 225(c)(1)]; it cannot carry a premium the employer still owes. Either way the reconciliation starts from hours by workweek, and those come from timekeeping.
The regular rate is rarely the hourly rate
The premium is half the regular rate, and 29 USC 207(e) makes the regular rate “all remuneration for employment paid to, or on behalf of, the employee” less eight listed exclusions, divided by hours worked (Q15). A shift differential goes in 29 CFR 778.207(b). A nondiscretionary bonus goes in 778.208. A bonus is discretionary, and excluded, only where both the fact and the amount of payment stay at the employer’s sole discretion until at or near the end of the period; an attendance bonus, a production bonus, or a bonus promised in advance goes in, and 778.211(d) says the label on it does not decide the question.
29 CFR 778.110(b) shows the size. An employee at $12 an hour works 46 hours and earns a $46 production bonus in the week. The regular rate is $598 divided by 46 hours, which is $13, and the premium is $6.50 for each of six overtime hours: $39. A payroll that computed the premium on the $12 base paid $36 and is $3 short for the week. Three dollars is not much. A shift differential does the same thing to every week the employee works one.
Bonuses paid after the fact
A quarterly or annual bonus that turns out to be nondiscretionary raises the regular rate of every workweek it covers, after those weeks have closed. 29 CFR 778.209(a) says the bonus must be apportioned back over the workweeks in which it was earned, and that the employee must then receive, for each overtime week, one-half of the hourly rate allocable to the bonus for that week times the overtime hours in it. Payroll usually codes that payment as a retro or a bonus adjustment, and it is qualified. The bonus itself never is.
The size depends on a choice 778.209(b) leaves to the employer where the bonus cannot be traced to particular weeks: an equal amount of bonus for each week of the period, or an equal amount for each hour worked in it. Take a $1,300 quarterly bonus over 13 weeks, 10 of them of 40 hours and three of 50. Equal per week, the bonus adds $100 to each week, $2 an hour in a 50-hour week, and the true-up is $10 for each of the three overtime weeks: $30. Equal per hour, the bonus adds $1,300 over 550 hours, about $2.36 an hour, and the true-up on 30 overtime hours is $35.45. Same bonus, same hours, two lawful figures, and the reconciliation has to know which one payroll used. The same machinery applies to deferred commissions (778.119) and to retroactive pay increases (778.303): a $1 raise made retroactive over four 45-hour weeks is $190 of back pay, of which $10, the half-rate on 20 overtime hours, is qualified.
Two rates in one week
Where an employee works two jobs at two rates in one workweek, 29 CFR 778.115 makes the regular rate the weighted average: total earnings from both rates divided by total hours at both jobs. Thirty hours at $20 and 20 hours at $30 is $1,200 over 50 hours, a regular rate of $24, and $120 of premium for 10 overtime hours. A payroll that paid time-and-a-half at the rate of whichever job the overtime hours fell in paid a $100 premium or a $150 one. Neither is what Section 7 required, unless an agreement reached before the work put the employee on the rate-in-effect method of 29 USC 207(g)(2). With such an agreement, Q17 of the IRS fact sheet says the premium actually paid under that provision is the qualified amount. So the reconciliation needs to know whether the agreement exists before it can tell a $100 premium from a $20 shortfall.
Tipped employees
29 CFR 531.60 makes a tipped employee’s regular rate include the tip credit the employer takes, capped at the Section 6(a)(1) minimum wage less the cash wage paid. 531.59 prints the $2.13 cash-wage floor; the $5.12 credit is $7.25 less $2.13 and is printed in no regulation. Apply the rule, and the regular rate of a server at the federal cash wage is $7.25. Ten overtime hours carry $36.25 of premium. A payroll that computed the premium on the $2.13 cash wage paid $10.65 and is $25.60 short for the week, and the box can only carry what was paid.
In a state where the minimum wage is above $7.25, the rate moves again. 29 CFR 778.5 says that where a higher minimum wage applies to an employee under other legislation, the FLSA regular rate “cannot be lower than such applicable minimum.” At an $11 state minimum the same 10 hours carry $55. The state minimum is an input, and it is not on the register.
Salaried nonexempt: Two methods, two figures
A salary for a fixed workweek becomes an hourly rate by dividing it by the hours the salary is intended to compensate [29 CFR 778.113(a)]. A $600 salary for 40 hours is $15 an hour. In a 44-hour week the employee is owed straight time for hours 41 to 44 and half-time on top, so the register’s overtime line reads $90 and code TT is $30.
The same $600 salary under the fluctuating workweek method of 778.114, where the salary is understood to cover all hours worked however many there are and the five conditions in 778.114(a) are met, gives a regular rate that changes every week. Six-hundred dollars over 44 hours is $13.64, and the employee is owed half-time only: $27.28. Here the whole overtime line is premium and all of it is qualified. Same salary, same hours: $30 in the box under one method and $27.28 under the other, and $90 against $27.28 on the register. Which method applies is a fact about the employment relationship, settled before the arithmetic starts.
That figure shows one more thing. 778.114(b)(1) rounds the regular rate to $13.64 before halving it; at full precision the rate is $13.636 recurring and the premium is $27.27. 29 CFR 778.109 defines the regular rate as a division and prescribes no precision for it, and the illustrations in 778.113 and 778.114 round the rate to the cent before computing on it. A penny a week between a payroll that rounds the rate and a reviewer who does not is a convention, and the reconciliation should record which one it used.
Which year
Q3 of the IRS fact sheet: qualified overtime compensation is paid when it would be treated as wages for income tax withholding, which in the ordinary case is the pay date. Overtime earned in a workweek is due on the regular payday for the period in which the workweek ends (29 CFR 778.106). A workweek ending Jan. 2, 2027, and paid Jan. 8, 2027, belongs to 2027, every hour of it, the December ones included. A workweek ending Dec. 26, 2026, and paid Dec. 31, 2026, belongs to 2026. A report that totals overtime by work date and a W-2 that reports by pay date differ by up to one pay period at each end of the year, and a bonus true-up for 2026 workweeks paid in January 2027 is 2027’s.
Comp time, for the one class of employer that can bank it
State and local government employers may give compensatory time instead of cash overtime under 29 USC 207(o), at not less than one and-one-half hours for each overtime hour. Q18 says qualified overtime compensation is paid when the banked time is taken as leave or cashed out, not when it is earned, and that the amount is the hours paid, times the rate that applies to them, divided by three. A $720 cash-out is $240 of code TT.
Both of Q18’s examples bank time at one and one-half hours per overtime hour, and its division by three is the premium half of that accrual. 207(o)(1) sets one and one-half as a floor, with the words “not less than,” and an agreement may bank more. Whether the FAQ’s constant or the statute’s definition in 225(c)(1) governs a richer accrual is a question Q18 does not address, and the two do not give the same figure. FS-2026-13 says of itself that where an FAQ is an inaccurate statement of the law “the law will control,” and that a taxpayer who relies on it reasonably and in good faith is not subject to a penalty carrying a reasonable-cause standard. A preparer with such a client has to pick a reading, write down which, and keep the accrual rate on file.
What to do, in order
The register answers what was paid. The box asks what Section 7 required, and only the half. So the work runs the other way from the usual tie-out.
Rebuild hours by workweek from timekeeping, on the employer’s workweek definition, and find the hours over 40 in each. Classify every earning code under 207(e): in the regular rate or out of it, and if out, whether it is a creditable premium under (e)(5), (6), or (7). Compute the regular rate for each workweek from the includable pay and the hours worked, with the tip credit in it, the bonus allocated back, the salary converted on the right method, and the state minimum as a floor. Half that rate times the hours over 40 is the required premium. Compare it with the premium the register shows for the same week: where the employer paid more, the excess is not qualified (Q16), and where the employer paid less, the difference is not reportable until it is paid, and it is a wage claim first.
Then write the method down: which bonus allocation method, which rounding convention, which reading on any question the sources leave open, and where each input came from. 26 USC 6724(a) provides that no information-return penalty is imposed for a failure “due to reasonable cause and not to willful neglect,” and a documented method applied the same way to every employee is what that showing is made from. Whether a particular showing succeeds is a question for its facts.
Errors run both ways, and only the employer can fix them. Q11: an employer that discovers an error in box 12, code TT must file and furnish a Form W-2c as soon as possible. Q21: an overstated figure does not help the employee, who may deduct only the amount actually paid. Q22 and Q23: an understated figure limits the employee to what the W-2 shows unless the employer issues a W-2c, and Form 4852 does not substitute for one. The penalties under sections 6721 and 6722, as adjusted for returns due in 2027 by Revenue Procedure 2025-32, are $60 per form corrected within 30 days of the due date, $130 corrected later but within the second tier the statute sets, $340 after it, and not less than $690 per form with no annual cap where the failure is intentional. One incorrect W-2 can draw both, since 6721 reaches the copy filed with the Social Security Administration and 6722 the copy furnished to the employee.
Nothing in 2026 lets an employer approximate any of this. Section 70202(h) of the One Big Beautiful Bill Act allowed a separate accounting to be approximated by any reasonable method only for periods before Jan. 1, 2026 (Notice 2025-69, section II), and Q20 says no relief is available for tax years after 2025. The figure has to be computed, workweek by workweek. That is not a year-end task that starts from the register. It starts from the workweek, and the register is the last thing it is checked against.
ABOUT THE AUTHOR:
Aeon is the owner of Tie-Out Press, an imprint of Aeon Aurora LLC that builds reconciliation tools for W-2 box 12, code TT. He is not a CPA or an enrolled agent, which is why every legal claim above carries its citation: nothing in this article needs to be taken on his word. The imprint is at tieoutpress.com.
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Tags: employees, Fair Labor Standards Act, FLSA, Form W-2, IRS, Payroll, Taxes, taxes and overtime
