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Takeaways
The Internal Revenue Service (IRS) released guidance on November 5, 2025, granting employers relief from tax penalties for failing to provide employees information related to their (1) "qualified tips" and (2) "qualified overtime compensation" that is otherwise required under the One Big Beautiful Bill Act (OBBBA). The relief applies only to the reporting obligation for the 2025 tax year.
Related Links
- IR-2025-82 (IRS announces no changes to individual information returns or withholding tables for 2025 under the One, Big, Beautiful Bill Act)
- IR-2025-92 (Treasury, IRS issues guidance listing occupations where workers customarily and regularly receive tips under the One, Big, Beautiful Bill)
- IR-2025-110 (Treasury, IRS provides penalty relief for tax year 2025 for information reporting on tips and overtime under the One, Big, Beautiful Bill)
- IRS Notice 2025-62 (Relief from Certain Penalties Related to Information Reporting Required in Connection with No Tax on Tips and Overtime)
- Federal OBBBA Round-Up: What Employers Need to Know Now – Jackson Lewis
- OBBBA's Tips + Overtime Tax Break: Reclassification Considerations, Reporting Requirements, Industry Impact + More – Jackson Lewis
Background
- Deduction for overtime pay and tipped income: For tax years 2025 -2028, the OBBBA allows employees to take an above-the-line tax deduction on qualified overtime pay and qualified tips.
- Employer reporting obligations: The OBBBA requires employers to report on Form W-2 the portion of an employee's pay that is qualified overtime compensation and qualified tips. For employees receiving qualified tips, employers must also identify the employee's qualifying tip-earning occupation. The OBBBA requires the IRS to provide transition relief for tax year 2025 for employers and payors subject to the new reporting requirements.
Article
The IRS announced (in IR-2025-110 and IRS Notice 2025-62) transition penalty relief for the 2025 tax year for not filing correct information returns and not providing correct payee statements (i.e., a Form W-2) to employees. Specifically, employers will NOT face penalties (under Code sections 6721 or 6722) 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 and other payors will also NOT face penalties for failing to provide the total amount of qualified overtime compensation separately. The relief is contingent upon the Form W-2 being complete and correct regarding the aggregate amounts required (e.g., cash tips and overtime being aggregated into the usual reporting line).
The IRS still recommends that employers provide tip and overtime information to employees for the 2025 tax year. Acceptable methods include submitting information through an online portal, providing additional written statements to employees, using other secure methods, or, in the case of qualified overtime pay, entering the amount in Box 14 of the employee's Form W-2.
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