The article on the IRS’s website can be a bit confusing in regards to the DoT and the IRS issued guidance providing penalty relief to employers and other payors for tax year 2025 regarding new information reporting requirements for cash tips and qualified overtime compensation under the One, Big, Beautiful Bill. Below, I have used ChatGPT to summarize the original article. If you wish to read it in its entirety as shared by the IRS, you can find that
HERE.
Key Points
- The One, Big, Beautiful Bill (OBBB) created new information-reporting requirements for employers and other payors. Specifically, they must report:
- Cash tips received by employees, including the occupation of the recipient.
- Qualified overtime compensation paid to employees or other payees.
- For tax year 2025, the Treasury Department and the IRS are providing “transition penalty relief” for failing to meet the new reporting requirements.
- The relief applies only if the employer/payor files/provides a complete and correct return or statement aside from the new data fields.
- Employers/payors are encouraged (but not required) to start providing:
- Separate accounting of cash tips and recipient occupation to tipped-employees.
- Separate accounting of qualified overtime compensation (for example, via Box 14 on Form W-2 or other secure method)
- The reason for relief: Many employers/payors may not yet have the systems or procedures to capture the new information, and the IRS/W-2/1099 forms have not been updated for OBBB‐related changes for 2025.
- For individual taxpayers, more guidance will be forthcoming on how to claim the deductions for qualified tips and qualified overtime compensation.
Implications
- For employers/payors: 2025 is effectively a grace period for enforcement of the new reporting rules, giving time to adapt.
- For employees/payees who receive cash tips or overtime, they should begin tracking those amounts because the ability to deduct them (when properly reported) will be part of the new rules.
- For tax professionals: Be aware of the new reporting requirements and the relief available for 2025; also, stay tuned for further guidance from the IRS on how the deductions work for individuals.
- For payroll systems / HR departments: This is a good time to review whether systems can capture the required data (cash tips by occupation, overtime compensation amounts), and plan for 2026 when full reporting is expected.
For more information, you can also read the One, Big, Beautiful Bill provisions page on IRS.gov.