Understanding Tip Tax on Cash (TTOC) Codes for W-2 Reporting

Overview

Tip Tax on Cash (TTOC) codes are used to identify tipped employees for W-2 reporting purposes. These codes can be assigned to employees in advance and will be included on the W-2 once the updated W-2 formats are released for the applicable tax year. This article explains how TTOC codes work, why two codes are available, and when to use the override field.

TTOC Code Assignment

There is no functional difference between TTOC 1 and TTOC 2. Two codes are available to accommodate employees who work in more than one tipped position — for example, an employee who works as both a bartender and a server. Each code can represent a different tipped role for the same employee.

TTOC codes can be assigned to employees at any time and do not need to wait until the updated W-2 formats are available.

When to Use the TTOC Override

The override field is used when amounts have been recorded as tips that do not qualify as eligible tips for TTOC reporting purposes.

A common example is automatic gratuities — tips that are automatically added to a customer's bill. Because these are not voluntarily given by the customer, they are not considered qualified tips. If automatic gratuities or similar non-qualifying amounts have been recorded as tips in the system, an override should be entered to ensure the correct amounts are reflected on the W-2.

Key Takeaways

• TTOC 1 and TTOC 2 function the same way — two codes are provided to support employees holding more than one tipped position.

• TTOC codes will appear on the W-2 once the updated formats for the applicable tax year are released, typically in December.

• The override field should be used when recorded tip amounts include non-qualifying tips, such as automatic gratuities.

• Employee TTOC codes can be assigned ahead of the W-2 format release so they are ready when filing begins.