This article provides you about how to make a setup to report on W2 form as per One Big Beautiful Bill Act (OBBBA) for exempt on Overtime Hours and Tip Income towards Qualified and Non-Qualified Tips.

Starting in 2026, employers are required to report qualified and non-qualified tips separately on Form W-2 using new codes

Qualified Tips: Qualified tips are those that are eligible for an employee’s federal income tax deduction of up to $25,000 annually.

Non-Qualified Tips: Non-qualified tips are those that do not meet the above criteria and are therefore not eligible for the special deduction, although they remain taxable income subject to standard withholding.

Examples of Non-Qualified Tips: Mandatory Service Charges: Automatic gratuities added to a bill, even if distributed to staff.

W-2 Reporting Setup for OBBBA (One Big Beautiful Bill Act)

This article explains how to configure your system to report W-2 information in compliance with the One Big Beautiful Bill Act (OBBBA), specifically for exempt Overtime Hours and Tip Income, including Qualified and Non-Qualified Tips.

Overtime Hours Reporting

1. Use the predefined Hour Category for Overtime.
2. When the Apply to OBBBA checkbox is selected: The excess overtime wages will be reported on the employee’s W-2 form, Box 12, using Code TT.

Tip Income Reporting (Qualified and Non-Qualified)

The Employer can report tip income in one of the following ways:

1. Use an existing pre-loaded Additional Income category, or
2. Create a new Additional Income category and configure it as needed.

Setup Requirements for Tip Income Reporting

To report Qualified Tips or Non-Qualified Tips on the W-2 (Box 12):

1. Select the Apply to OBBBA checkbox.
2. Enable Box 12 reporting.
3. Assign the appropriate Box 12 code:
   1. Qualified Tips → Code QT
   2. Non-Qualified Tips → Code TS
4. If applicable, also select Box 14(b) and enter the required code:
   1. Treasury Tipped Occupation Code (TTOC)