Tie-out tool / Deduction limits

Qualified overtime deduction limits

An employee can deduct up to $12,500 of qualified overtime a year, or $25,000 on a joint return. The employer reports the full amount paid in box 12 code TT, with no cap.

Item	Amount or rule
Maximum deduction	$12,500 per return; $25,000 on a joint return
Reduced when modified adjusted gross income is over	$150,000; $300,000 for joint filers
Tax years	2025 through 2028
Where the employee claims it	Schedule 1-A (Form 1040)
What the employer reports	All qualified overtime paid in the year, Form W-2 box 12 code TT, from tax year 2026
Payroll taxes	Overtime compensation is still generally subject to federal income tax withholding and to the employer and employee shares of social security tax and Medicare tax (IRS W-2 instructions, box 12 code TT)

Sources, all IRS FS-2026-13: deduction limits and income thresholds, Q2; tax years, Q20 (tax year 2025) and Q19 (tax years 2026-2028); where it is claimed, Q2 and Q19; what the employer reports, Q10. The payroll taxes row is from the IRS W-2 instructions (2026), not from the fact sheet.

Example from the IRS: an employer that paid $30,000 of qualified overtime in 2026 reports $30,000 with code TT, even though the employee can deduct at most $12,500 ($25,000 joint).

Do the whole year from a file

Drop a timesheet CSV, paste the register overtime totals, and get a worksheet per employee with the reason for every difference.

Open the tie-out tool

Runs in your browser. Payroll data is never uploaded.

Questions

Does the employer cap Code TT at $12,500?

No. Report the full amount paid. The limit is applied on the employee return.

Sources

Fetched 2026-11-10. Regulation text was checked against the federal annual edition; links open the current online version.

Updated 2026-11-10. Tickfoot is an information tool, not tax, legal or professional advice.