IRS Drafts New 2026 Form W-2 with Dedicated Boxes for Tips, Overtime, and More

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Sep 3
2 min read

The IRS has just released a draft of the 2026 Form W‑2, designed to capture newly eligible tax deductions for tips and overtime, under the One Big Beautiful Bill Act (OBBBA). These changes reflect major adjustments in tax law and what is expected on your W‑2 next year. Here’s what to know:

What Has Changed?

Box 12 Gets More Codes

Three new reporting codes have been added:

TP – Total amount of qualified tips
TT – Total amount of qualified overtime compensation
TA – Employer contributions to a Trump Account (a new savings account for children born between 2025–2028)These additions support the OBBBA, allowing workers to deduct qualified tips and overtime pay when filing.

Box 14 Is Now Two Parts

Box 14a remains “Other.”
Box 14b is new—labeled “Treasury tipped occupation code.” This will be used to report eligible tipped occupations so employees can claim the “no tax on tips” deduction, pending a list of qualifying jobs that the Treasury will release by October 2, 2025.

Why This Matters

The OBBBA enables significant deductions: up to $25,000 for tips and $12,500 for overtime (per single filer), with higher caps for joint filers. These are one of the most impactful changes to federal taxation in recent memory.
Although the W‑2 won’t change in 2025, these updates are set for tax year 2026. Employers and payroll teams will need to prepare for this jump in reporting requirements now.
Employers must identify eligible employees, track tip and overtime amounts, and apply the correct occupation codes. Meanwhile, employees must use the new fields to claim deductions on the proposed new Schedule 1‑A (Form 1040), which aggregates deductions beyond Itemized or Standard deductions.

What You Should Do Now

For Employers & Payroll Teams:

Stay coordinated with payroll software vendors to implement Box 12 (TP, TT, TA) and Box 14b accurately.
Monitor official guidance for the occupation codes and how to reasonably estimate 2025 amounts.
Prepare for the rollout in 2026 well in advance.

For Employees:

Work with payroll to ensure your tips and overtime are adequately tracked and labeled.
Look for the new form layout next year—know where deductions will appear on your W-2.
Stay tuned for guidance on how to file the new Schedule 1-A alongside your Form 1040.

Bottom Line

The IRS’s draft of the 2026 W-2 marks a significant shift in how tip and overtime pay will be treated for tax purposes. These new reporting lines aren’t just administrative, they’re powerful deductions that could significantly reduce taxable income for many workers. Kamish & Associates is here to help both employers and employees prepare, comply, and take advantage of these changes.