IRS Provides Guidance on 2025 Reporting of OBBB Qualified Tips and Overtime

The Department of the Treasury and the Internal Revenue Service issued guidance providing penalty relief to employers for tax year 2025 regarding new information reporting requirements for cash tips and qualified overtime compensation under the One, Big, Beautiful Bill. Employers will not face penalties for failing to provide a separate accounting of any amounts reasonably designated as cash tips or the occupation of the person receiving such tips. In addition, employers will not face penalties for failing to separately provide the total amount of qualified overtime compensation. The relief is limited to returns and statements for tax year 2025.

Treasury and IRS are aware that employers and other payors may not currently have the information required to be reported under the OBBB. Moreover, the IRS has announced that Forms W-2 and 1099 for tax year 2025 will not be updated to account for the OBBB-related changes. Therefore, tax year 2025 will be treated as a transition period for IRS enforcement and administration of the new information reporting requirements for cash tips and qualified overtime compensation under the OBBB. 

While not a requirement, employers are still encouraged to provide employees in tipped occupations with the occupation codes and separate accountings of cash tips so the employee can claim the deduction for qualified tips. Likewise, employers are encouraged to provide employees with separate accountings of overtime compensation.