What's covered in this guide?
What the OBBBA means for payroll
The One Big Beautiful Bill Act (OBBBA), signed into law in 2025 and effective for tax year 2026, introduced two federal income tax deductions relevant to payroll:
No Tax on Tips — Employees can deduct qualifying tip income from federal income tax, up to $25,000 per year. Tips only qualify if earned in an occupation on the Treasury Department's published list of tipped occupations.
No Tax on Overtime — The overtime premium (the extra pay earned on top of straight-time wages for overtime hours) is excluded from federal income tax. See Weighted Average Overtime for how overtime rules work and how the premium is reported on the W-2.
This guide covers what your business needs to do so that tips are correctly identified and reported as qualified on your employees' W-2s.
What is a Tipped Occupation Code?
A Tipped Occupation Code (TTOC) is a three-digit code from the Treasury Department's official list of occupations that qualify for the No Tax on Tips deduction. The list covers 71 occupations across 8 categories:
Beverage and Food Service — Bartenders, wait staff, food prep workers, dishwashers, bakers, host staff, and more
Entertainment and Events — Gambling dealers, musicians, disc jockeys, digital content creators, ushers, and more
Hospitality and Guest Services — Baggage porters and bellhops, concierges, hotel and motel desk clerks, housekeeping
Home Services — Home maintenance and repair, landscaping, electricians, plumbers, appliance installers, locksmiths, and more
Personal Services — Event planners, photographers, videographers, tutors, nannies, floral designers, and more
Personal Appearance and Wellness — Barbers, cosmetologists, massage therapists, fitness instructors, tattoo artists, nail technicians, and more
Recreation and Instruction — Golf caddies, tour guides, travel guides, sports and recreation instructors, and more
Transportation and Delivery — Parking and valet attendants, taxi and rideshare drivers, delivery workers, home movers, and more
In Workforce, TTOCs are assigned at the team level. Tips earned on shifts tagged to a team with a TTOC assigned are treated as qualified. Tips earned on shifts tagged to a team without a TTOC are not qualified and will not count toward the deduction on the employee's W-2.
Assigning TTOCs to your teams is the most important step for getting tip reporting right in TY2026. Any tips earned on shifts tagged to a team with no TTOC — or before a TTOC is assigned — will be reported as ordinary wages and will not qualify for the deduction, even if the occupation would otherwise be on the list. Assign codes as early in the tax year as possible.
Assign a TTOC to a team
Navigate to Workforce > Teams
Select the team and click to edit it
Scroll to the Job Classification section
Find the Tipped Occupation Code (TTOC) field and open the dropdown
The dropdown is grouped by occupation category. Type in the search box to filter by occupation name or code number, then select the matching code.
Save the team
Repeat this for every team where employees receive tipped wages. Teams that do not receive tips do not need a TTOC — leaving the field blank is fine.
Only assign a code that genuinely matches the work performed. The Treasury list is fixed — assigning a code that does not match the occupation could result in tips being reported as qualified when they are not.
Assign TTOCs in bulk with CSV
If you have many teams, use the team CSV export and import to assign codes in bulk rather than editing each team one at a time.
Step 1: Export your teams
Navigate to All Settings > Customize & Extend Workforce > Import & Export
Find the Teams row and click Export
In the field selector, choose Team Name and Tipped Occupation Code (TTOC) (at minimum)
Click Export and download the CSV
The TTOC column will be blank for teams with no code yet, and will show the existing code for teams that already have one.
Step 2: Add codes to the CSV
In the downloaded file, enter the three-digit TTOC number in the Tipped Occupation Code (TTOC) column for each applicable team — for example, 101 for Bartenders or 603 for Barbers, Hairdressers, Hairstylists, and Cosmetologists. Leave the column blank for teams with no tipped occupation.
The full list of codes and their occupation names is available in the TTOC dropdown on any team's edit page. If you enter an invalid code, the import will return an error for that row.
Step 3: Import the updated CSV
Navigate to All Settings > Customize & Extend Workforce > Import & Export
Find the Teams row and click Import
Upload the CSV and match the columns
Run the import
Each team in the file will have its TTOC updated. To remove a code from a team, leave the TTOC column blank for that row before importing.
How qualified tips appear on the W-2
Starting with TY2026 W-2s, Workforce reports qualified tips as follows:
Box 12, code TP — The total dollar amount of tips earned in teams that have a TTOC assigned. Tips earned in teams without a TTOC are excluded.
Box 14b — Up to two TTOCs for the tipped occupations the employee worked in during the year, ranked by hours worked in each. This identifies which occupations the qualified tips were earned in.
Tips earned in teams without a TTOC still appear in Box 1 (total wages) and Box 7 (total tips), but they will not be included in Box 12 TP or Box 14b. That means they will not qualify for the deduction on the employee's federal return.
If an employee works tipped roles across more than two TTOC occupations during the year, only the top two occupations by hours worked are reported in Box 14b. This is the limit set by the IRS.
For information on how to configure tips as an earnings type, see Earnings Rates. For an overview of year-end W-2 filing, see Tax Filings.
How overtime premium appears on the W-2
Under the OBBBA's No Tax on Overtime provision, the overtime premium — the extra portion of pay earned above straight-time wages for overtime hours — is excluded from federal income tax. Starting with TY2026 W-2s, the total overtime premium for the year is reported in Box 12, code TT.
Workforce calculates and reports this amount automatically. No additional setup is required for W-2 overtime premium reporting beyond having your overtime earnings rules configured correctly.
For details on how overtime rules are set up and how the weighted average overtime calculation works, see Weighted Average Overtime.
Frequently Asked Questions
Does assigning a TTOC affect how tips are withheld or taxed during the year?
No. Tips are withheld and taxed normally through each pay run. The TTOC affects only how tips are reported on the W-2 at year end. The deduction is claimed by the employee on their federal income tax return, not during payroll processing.
What if none of the 71 occupations match my team's role?
If the work performed does not correspond to any occupation on the Treasury's list, those tips are not qualified under the OBBBA and no TTOC should be assigned. Only occupations on the published list qualify for the deduction — do not assign a code that does not genuinely match the work performed.
Can an employee receive qualified tips from multiple teams with different TTOCs?
Yes. If an employee works shifts on multiple TTOC-coded teams with different codes, qualified tips from all teams are summed for Box 12 TP. For Box 14b, the two occupations where the employee worked the most hours during the year are reported.
What is the difference between Box 7 and Box 12 TP on the W-2?
Box 7 reports all tips received by the employee — both qualified and non-qualified. Box 12 TP reports only the qualified portion, meaning tips from teams that have a TTOC assigned. If a team has no TTOC, its tips still appear in Box 7 but not in Box 12 TP.