Box 12 code TT on the 2026 Form W-2 carries the total amount of qualified overtime compensation, and qualified overtime is only the premium portion of overtime required and paid under section 7 of the Fair Labor Standards Act. That qualifier does most of the work on a public payroll, because section 7 does not impose a single 40-hour threshold on public agencies. It imposes several, and it also declines to cover a great deal of the overtime that public employers actually pay.
The consequence is specific: a register reconstructed with the 40-hour rule will pull in premium that is not qualified while missing premium that is, on the same employee, in the same pay period. The general mechanics of the code — that it carries the premium and not total overtime pay — are covered in the guide on code TT and the overtime premium. This page covers only what changes when the employer is a public agency.
Is police and fire overtime qualified overtime for Box 12 code TT?
Yes, but the hours threshold is not 40. Section 7(k) of the FLSA lets a public agency engaged in fire protection or law enforcement pay overtime on a work period basis of between 7 and 28 consecutive days. 29 CFR 553.230(a) provides that for fire protection employees, “no overtime compensation is required under section 7(k) until the number of hours worked exceeds the number of hours which bears the same relationship to 212 as the number of days in the work period bears to 28”; paragraph (b) sets the same rule against 171 hours for law enforcement, including security personnel in correctional institutions.
Paragraph (c) publishes the resulting maximum hours standards, rounded to the nearest whole hour. These are the thresholds above which premium pay becomes qualified overtime for code TT purposes:
| Work period (days) | Fire protection | Law enforcement |
|---|---|---|
| 28 | 212 | 171 |
| 27 | 204 | 165 |
| 26 | 197 | 159 |
| 25 | 189 | 153 |
| 24 | 182 | 147 |
| 23 | 174 | 141 |
| 22 | 167 | 134 |
| 21 | 159 | 128 |
| 20 | 151 | 122 |
| 19 | 144 | 116 |
| 18 | 136 | 110 |
| 17 | 129 | 104 |
| 16 | 121 | 98 |
| 15 | 114 | 92 |
| 14 | 106 | 86 |
| 13 | 98 | 79 |
| 12 | 91 | 73 |
| 11 | 83 | 67 |
| 10 | 76 | 61 |
| 9 | 68 | 55 |
| 8 | 61 | 49 |
| 7 | 53 | 43 |
A seven-day work period is the one that catches people, because it looks like a workweek and is not: 53 hours for fire, 43 for law enforcement. Public hospitals and residential care establishments have a third structure again, the “8 and 80” exception under section 7(j), which computes overtime over a fixed fourteen-day period rather than a workweek.
What a 7(k) work period does to the code TT figure
Take a fire department on a 24-day work period, where 29 CFR 553.230(c) puts the FLSA maximum at 182 hours. Suppose the department’s own agreement pays time-and-a-half after 168 hours, and a firefighter with a $28 regular rate works 190 hours in the period. Twenty-two of those hours are paid at a premium. Only eight of them produce qualified overtime:
| Hours | Premium paid at $14/hour | Qualified overtime for Box 12 code TT? |
|---|---|---|
| 169–182 (14 hours) | $196 | No — below the 182-hour FLSA maximum, so section 7 does not require it |
| 183–190 (8 hours) | $112 | Yes |
A reconstruction that treats every premium hour in the agreement as qualified reports $308 where $112 belongs — an overstatement of roughly 2.75 times. One that applies the 40-hour workweek rule instead produces a different wrong answer again, because it counts hours against a threshold the FLSA never applied to this employee. Neither error is visible anywhere in the payroll system, because neither changes a cent of withholding.
Does compensatory time go in Box 12 code TT?
It can, but not in the year it was earned. Section 7(o) of the FLSA lets a State or local government give compensatory time off in lieu of cash overtime, at not less than one and a half hours for each overtime hour worked; the premium is the additional half-hour portion. The Government Finance Officers Association, quoting footnote 18 on page 25 of IRS Notice 2025-69, states that “overtime amounts described in 29 USC § 207(o) must be properly included on the employee’s Form W-2 to be considered qualified overtime compensation,” and accordingly that an employee receiving compensatory time in satisfaction of overtime due “may take the overtime amount into account for purposes of the deduction only in the year the compensatory time is paid.”
That timing rule cuts across the register in an awkward way. Comp time accrued in 2025 and cashed out in 2026 belongs in the 2026 code TT figure; comp time accrued in 2026 and still on the books at year end does not. Accrual balances are frequently large — section 7(o)(3)(A) caps them at 480 hours for public safety, emergency response and seasonal work and 240 hours otherwise — and payouts on termination are made at a rate that may bear no relation to the rate in force when the hours were worked. A register that records comp time as an hours balance rather than as dated wage payments will not answer this question at all.
Overtime your own policy pays that is not qualified overtime
The single largest source of overstatement on a public payroll is premium pay the employer genuinely owes but the FLSA does not require. IRS Notice 2025-69 is direct about it, in language the GFOA quotes on page 20: “overtime compensation paid to FLSA-ineligible employees is not qualified overtime compensation within the meaning of section 225(c) (the deduction) with respect to such employment, regardless of applicable State law provisions or other circumstances causing these amounts to be paid.” The categories that recur:
- Salaried executive, administrative and professional staff, who are exempt from FLSA overtime requirements — any overtime they are paid under policy or contract is not qualified.
- Teachers, exempt under 29 CFR 541.303 where their primary duty is teaching at an educational establishment. Overtime paid to them under State law or a collective bargaining agreement does not qualify.
- Daily overtime — premium for hours over 8 in a day, where the employee never crosses the applicable weekly or work-period maximum.
- Thresholds more generous than the FLSA — an agreement paying premium after 35 or 37.5 hours generates qualified overtime only above 40, or above the 7(k) figure where that applies.
- Officers in very small public safety departments, where fire or police departments below the statutory size are exempt from the overtime requirements altogether.
Working in the other direction, the regular rate itself is usually higher than the stored base rate. 29 CFR 778.208 provides that bonuses which do not qualify for one of the eight statutory exclusions in section 7(e) “must be totaled in with other earnings to determine the regular rate on which overtime pay must be based”. Shift differentials and hazard pay behave the same way. Every one of them raises the regular rate, and so raises the premium the employee actually earned.
What the GFOA publishes, and what it leaves to you
The Government Finance Officers Association maintains the most detailed public-sector treatment of this deduction that anyone has published — a seventeen-question FAQ covering 7(j), 7(k) and 7(o), the regular rate, on-call and waiting time, non-discretionary bonuses, teachers, and the reasonable methods in IRS Notice 2025-69. It is accurate, it is properly sourced to the statute and the regulations, and a finance officer working through it will come out understanding the rules. Several of the citations on this page came from following its references.
What it is not is a reconstruction. It is written to explain the deduction to an association member, and its own note says that questions it does not cover should go to a licensed tax advisor, tax attorney or Series 50 Municipal Advisor. Two specific gaps matter for anyone whose 2026 payroll has already run. First, it is oriented to the 2025 tax year and to the employee’s side of the calculation — it discusses Box 14 reporting for 2025 under Notice 2025-69, and does not address Box 12 code TT or code TP at all. Second, read on 3 August 2026, its answer on what comes after 2025 states that “the IRS has not yet released guidance for employer’s reporting requirements associated with the deduction in tax years 2026-2028”. The General Instructions for Forms W-2 and W-3 already carry codes TT and TP for the 2026 form, with W-2s due to the SSA and to employees by 1 February 2027. Neither point is a criticism of an association FAQ, which is a different kind of document from a workpaper — but a finance officer relying on that answer would not know the codes exist.
What a public payroll register has to hold to derive code TT
Everything a private-sector register needs, plus four things specific to a public agency. Per employee, per pay period:
- Which section 7 structure the employee sits under — 7(a) workweek, 7(k) work period, or 7(j) 8-and-80 — and, for 7(k), the length of the work period in days.
- FLSA status, exempt or non-exempt, as it actually stood in that period rather than as a current HR flag.
- Comp time as dated payments, separating hours accrued from hours paid out, with the rate applied at payout.
- Premium hours attributed to a threshold, so that hours paid at a premium under the agreement can be separated from hours above the FLSA maximum.
- The regular rate as computed for that period, including bonuses, differentials and hazard pay, not the stored base rate.
Most public registers hold enough to recover all of this, because the underlying hours and payments are there. What they generally do not hold is the attribution — the link between a premium dollar and the threshold that caused it — and that is the part which has to be reconstructed and shown rather than asserted.
Checking a public register before January
The free readiness check reads a payroll register export and counts how many employees can be classified from the data already in it, before anything is bought. On a public payroll it will show up the specific failure mode described here: employees whose premium hours cannot be attributed to a threshold. The register is read in the request and not stored.
Where the data supports it, the reconstruction returns a per-employee workbook showing the derivation for every figure, a W-2 import file, a method memo, an exceptions report and a reconciliation. Pricing is $350 minimum, then $8 per employee. Truing is not the only place to have this done — the four options and what each publishes covers payroll providers, national tax firms and accountants; the penalty and W-2c exposure behind a wrong figure is set out in what it costs to fix Box 12 code TT. Agencies with tipped employees — concessions, municipal golf, convention centres — also have code TP to derive, which is a separate problem with a separate failure mode.
29 CFR 553.230 and 29 CFR 778.208 quoted from the eCFR on 3 August 2026 (Title 29 current as of 30 July 2026). GFOA “No Tax on Overtime FAQs” read 3 August 2026; passages from IRS Notice 2025-69 are quoted as the GFOA quotes them, and attributed accordingly. Nothing here is tax advice, and none of it is a substitute for counsel on a specific agency’s FLSA status.