The Treasury Department and the IRS issued guidance on Nov. 5 providing penalty relief to employers and other payors for tax year 2025 on the new information reporting requirements for cash tips and qualified overtime compensation under the One Big Beautiful Bill Act, Republicans’ tax-and-spending bill that was signed into law by President Donald Trump in July.
Notice 2025-62 provides penalty relief to employers and other payors for not filing correct information returns and not providing correct payee statements to employees and other payees.
Specifically, employers and other payors won’t 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, the IRS said.
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In addition, employers and other payors will also not face penalties for failing to separately provide the total amount of qualified overtime compensation.
The penalty relief is limited to returns and statements filed and provided for tax year 2025 and applies only to the extent that the person required to make the return or statement otherwise files and provides a complete and correct return or statement, according to the IRS.
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The Treasury Department and the IRS said they’re aware that employers and other payors may not currently have the information required to be reported under the OBBBA or the systems or procedures in place to be able to correctly file the additional information with the IRS—or the Social Security Administration in the case of a Form W-2—and provide it to employees and other payees. Additionally, the IRS earlier announced that forms W-2 and 1099 for tax year 2025 won’t be updated to account for the OBBBA-related changes. As a result, 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 OBBBA, the tax agency said.
In a media release on Wednesday, the IRS stated: “While not a requirement to receive the penalty relief provided in Notice 2025-62, employers and other payors are encouraged to provide employees and payees, particularly those in a tipped occupation, with the occupation codes and separate accountings of cash tips, so the employee or payee can claim the deduction for qualified tips for tax year 2025. Likewise, employers and payors are encouraged to provide employees and payees with separate accountings of overtime compensation, so the employee or payee has readily available the information necessary to claim the deduction for qualified overtime compensation for tax year 2025. Employers and payors can make the information available to their employees and payees through an online portal, additional written statements provided to the employees or payees, other secure methods, or in the case of qualified overtime compensation in Box 14 of the employee’s Form W-2.”
The new reporting requirements for these two tax provisions in the OBBBA, according to the IRS, are:
No tax on tips: Certain employees and self-employed individuals who receive qualified tips may deduct qualified tips that are reported on a Form W-2, Form 1099, or reported directly by the individual on Form 4137, Social Security and Medicare Tax On Unreported Tip Income. Employers and other payors must file information returns with the IRS, or the SSA in the case of Form W-2, and provide statements to taxpayers showing certain cash tips received during the year and the occupation of the tip recipient.
No tax on overtime: Certain individuals who receive qualified overtime compensation may deduct the qualified overtime compensation that is reported on a Form W-2 or Form 1099. Employers and other payors are required to file information returns with the IRS, or the SSA in the case of Form W-2, and provide statements to taxpayers showing the total amount of qualified overtime compensation paid during the year.
Additional guidance for individual taxpayers that addresses how they can claim the deductions for qualified tips and qualified overtime compensation when they file their tax year 2025 returns is forthcoming, the IRS said on Wednesday.
Photo credit: gregobagel/iStock
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