Short answer. Find the overtime hours, rate and amount on each stub, keep only hours over 40 in the workweek that the FLSA requires to be paid as overtime, and take the premium. If the stub shows total overtime pay at time-and-a-half, divide it by 3. If it shows total pay at double time, divide by 4. If the stub already lists the premium on its own line, use that (half of it for double time). From 2026, the W-2 shows the yearly total in box 12 with code TT.
What the deduction counts
For 2025 through 2028, the qualified overtime deduction is up to $12,500 a year ($25,000 on a joint return), phasing out above $150,000 of modified AGI ($300,000 joint). The IRS's updated questions and answers (FS-2026-13) define qualified overtime as overtime the FLSA requires, and only the amount above the regular rate. In time-and-a-half, that's the "half." Overtime paid because of a state law, a union contract or an employer policy, beyond what the FLSA requires, does not count.
Step by step: read one pay stub
- Confirm you are paid overtime under the FLSA. Whether you are covered or exempt is "a fact-specific determination" based on your duties and pay, according to the IRS. Someone who is overtime-exempt under the FLSA has no qualified overtime, whatever other laws or contracts say. Federal employees can check block 35 of the SF-50: "N" means nonexempt, "E" means exempt.
- Find the overtime line. Most stubs show hours, a rate and an amount, labeled OT, overtime, 1.5x or DT. Write down all three.
- Check which hours are FLSA overtime. The FLSA rule is hours over 40 in a workweek. Premium pay for hours beyond 8 in a workday is the IRS's own example of overtime the FLSA may not require: if your weekly total was 40 or less, it isn't qualified overtime. The IRS says qualified overtime is generally determined each workweek.
- Work out the premium. Notice 2025-69 gives the methods: use a premium shown on its own; divide a time-and-a-half total by 3; take half of a double-time premium shown on its own; divide a double-time total by 4. Only the part the FLSA requires counts, which is why double time is cut down to the half-time amount.
- Handle comp time separately. FS-2026-13 says qualified overtime isn't paid when you earn comp time. It counts when the comp time is used or cashed out.
- Log the result by workweek. Keep a running total and the stub dates. A pay period that covers two workweeks needs each week's hours checked on its own.
- Match the year to your W-2. Starting with 2026, employers must report qualified overtime, and the W-2 shows it in box 12 with code TT.
Two weeks of stubs
Week 1. An hourly warehouse worker earns $24 an hour and works 46 hours, Monday through Saturday. The stub shows: Regular 40.00 h × $24.00 = $960.00; Overtime 6.00 h × $36.00 = $216.00.
The overtime line is a time-and-a-half total, so the premium is $216 ÷ 3 = $72. Check: 6 hours × the $12 half-time = $72.
Week 2. The worker works 38 hours, including a 10-hour Monday. A state rule pays 2 hours of daily overtime at 1.5x, shown as $72. Because the week was under 40 hours, none of it is FLSA overtime and none of it is logged as qualified overtime.
Week 3. The worker works 48 hours, and a union contract pays the last 4 hours on Sunday at double time: Overtime 4.00 h × $36.00 = $144.00, Double time 4.00 h × $48.00 = $192.00. All 8 hours are over 40, so all are FLSA overtime. The 1.5x line gives $144 ÷ 3 = $48. The double-time line gives $192 ÷ 4 = $48, the half-time amount the FLSA requires. The extra half on top is contract pay and doesn't count. Qualified overtime for the week: $96.
Running total for the three weeks: $72 + $0 + $96 = $168.
When the W-2 doesn't match your log
FS-2026-13 covers this directly. If the employer finds an error it must give you a Form W-2c. If the amount was left off or understated, you need to ask the employer for a W-2c to use the higher amount. If the amount is overstated, you can count only the qualified overtime you were actually paid. A substitute Form 4852 does not meet the reporting requirement for this deduction.
A common reason for a gap is the regular rate. Under the FLSA it can include more than your base hourly wage in some pay setups. If your stubs show bonuses or shift differentials and the TT figure looks different from your hours times half your base rate, ask payroll how the amount was figured.
2025 returns
Employers weren't required to show qualified overtime separately on 2025 forms. Notice 2025-69 lets you use the overtime amounts on your pay stubs or earnings statements with the methods above, and you must keep copies of the documents you relied on.
Official sources
- IRS FS-2026-13: updated questions and answers on the qualified overtime compensation deduction (August 2026)
- IRS: Questions and answers about the deduction for qualified overtime compensation
- IRS Notice 2025-69: guidance for individuals who received qualified tips or qualified overtime in 2025
- IRS: Working Families Tax Cuts provisions for individuals and workers (updated Aug. 27, 2026)
- IRS: General Instructions for Forms W-2 and W-3 (2026)
Checked November 2026 on irs.gov and nj.gov.
Common questions
My state pays overtime after 8 hours a day. Does that count?
Only the part the FLSA requires counts. FS-2026-13 gives hours beyond 8 on a workday as an example of overtime that isn't FLSA-required when the weekly total doesn't pass 40.
My union contract pays double time. How much counts?
Only the amount needed to meet the FLSA, which is the half-time premium. If the stub shows total double-time pay, divide it by 4.
I'm salaried and get paid for extra hours. Is that qualified overtime?
If you are exempt from overtime under the FLSA, the IRS says you don't receive qualified overtime regardless of other laws or agreements. Whether you are exempt depends on your duties and pay.
My W-2 code TT amount is lower than my log. What do I do?
Ask your employer for a corrected Form W-2c. The IRS says a substitute Form 4852 doesn't satisfy the reporting requirement for this deduction.
When does comp time count?
Not when you earn it. FS-2026-13 says it counts when the comp time is used or cashed out.
Related guides: W-2 codes TT and TP · Tax documents checklist for 2027