Qualified OT Compensation Reporting on W-2, Form 1099-MISC and 1099-NEC Begins in Tax Year 2026
The IRS recently released new FAQs in Fact Sheet FS-2026-13, with updated guidance on the qualified overtime deduction that now mandates employers to report qualified overtime compensation on Form W-2, Form 1099-MISC or Form 1099-NEC for tax year 2026 and beyond. This deduction was created by the One, Big, Beautiful Bill Act (OBBBA).
Reporting qualified OT compensation on Form W-2, Form 1099-MISC or 1099-NEC
Beginning in tax year 2026, payors and employers are required to separately report qualified overtime compensation on the following forms:
- Form W-2 (box 12, code TT)
- Form 1099-MISC (box 14)
- Form 1099-NEC (box 1d)
Keep in mind that the only circumstance where a payor would report qualified overtime compensation on a Form 1099- MISC or Form 1099-NEC instead of a Form W-2 is when the worker is an employee of the employer for FLSA purposes but treated as an independent contractor for purposes of the Internal Revenue Code. To determine who is an FLSA overtime-eligible employee, click here to read Q4 on the FS-2026-13.
Circumstances when qualified overtime compensation is properly reported on Form 1099-MISC or NEC are rare. The FAQs assume Form W-2 reporting to an FLSA overtime-eligible employee, but similar principles in the FAQs below apply to Form 1099 series information reporting to FLSA overtime-eligible individuals.
Deduction Amounts and Limits
The deduction is up to $12,500 of qualified overtime compensation earned for the year per individual tax return ($25,000 in the case of a joint return).
The deduction is reduced if a taxpayer’s modified adjusted gross income (MAGI) for the tax year exceeds $150,000 ($300,000 for joint filers).
The August 6, 2026, FAQs supersede FS-2026-01 published on January 23, 2026. To read the entire FAQ published on August 6, 2026, please click here.
Should you need clarification or have questions on this or other matters affecting you or your business, please call 215.675.8364 or email us to speak with a CPA today.
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