The IRS just released important guidance for employers, payors, and tax professionals regarding new reporting requirements created under the One, Big, Beautiful Bill (OBBB). Because these rules introduce brand-new reporting categories for cash tips and qualified overtime compensation, the IRS is granting transition-year penalty relief for tax year 2025.
Here’s what you need to know and how to help your clients stay ahead of the changes.
Penalty Relief for 2025: A Transition Year
Under Notice 2025-62, the IRS is providing penalty relief for employers and payors who are unable to meet the new OBBB reporting requirements related to:
- Cash tips
- The occupation of the person receiving those tips
- Qualified overtime compensation
For tax year 2025, employers will not be penalized for failing to separately report these amounts as long as they still file complete and correct Forms W-2 or 1099.
This relief applies only to the 2025 tax year and only covers the new OBBB-related line-item reporting, not errors in existing reporting requirements.
Penalty Relief for 2025: A Transition Year
Under Notice 2025-62, the IRS is providing penalty relief for employers and payors who are unable to meet the new OBBB reporting requirements related to:
- Cash tips
- The occupation of the person receiving those tips
- Qualified overtime compensation
For tax year 2025, employers will not be penalized for failing to separately report these amounts as long as they still file complete and correct Forms W-2 or 1099.
This relief applies only to the 2025 tax year and only covers the new OBBB-related line-item reporting, not errors in existing reporting requirements.
Why the IRS Is Offering Relief
Treasury and the IRS acknowledged that many employers:
- Do not currently track the information required under OBBB
- Lack systems or software capable of capturing and reporting the new fields
- Rely on Forms W-2 and 1099, which will not be updated to reflect OBBB changes for 2025
Because the forms themselves won’t change until at least 2026, the IRS is treating 2025 as a transition year for enforcement.
This gives employers, payroll providers, and tax professionals time to upgrade systems, adjust processes, and prepare clients for future reporting.
Encouraged (But Not Required) Employer Actions
Even though the IRS is not requiring separate reporting for 2025, it is encouraging employers and payors to help employees prepare to claim new deductions for:
- Qualified tips
- Qualified overtime compensation
Providing this information—through an online portal, written statements, secure delivery, or Box 14 on Form W-2—will help employees correctly claim new deductions available under the OBBB on their 2025 tax returns.
These steps are optional for penalty relief but beneficial for accuracy and employee preparedness.
A Quick Look at the New OBBB Reporting Rules
1. “No Tax on Tips” Provision
Under the OBBB, certain employees and self-employed individuals may deduct qualified tips reported on:
- Form W-2
- Form 1099
- Form 4137 (for tips reported directly by the taxpayer)
Employers will eventually be required to provide:
- Total cash tips received
- The occupation of each tip-earning employee
2. “No Tax on Overtime” Provision
Qualified overtime compensation may also be deducted when properly reported.
Employers will be required to report:
- Total qualified overtime compensation paid during the year
Like the tip reporting rules, this requirement is postponed in practice until tax year 2026.
A Quick Look at the New OBBB Reporting Rules
1. “No Tax on Tips” Provision
Under the OBBB, certain employees and self-employed individuals may deduct qualified tips reported on:
- Form W-2
- Form 1099
- Form 4137 (for tips reported directly by the taxpayer)
Employers will eventually be required to provide:
- Total cash tips received
- The occupation of each tip-earning employee
2. “No Tax on Overtime” Provision
Qualified overtime compensation may also be deducted when properly reported.
Employers will be required to report:
- Total qualified overtime compensation paid during the year
Like the tip reporting rules, this requirement is postponed in practice until tax year 2026.
What Comes Next
The IRS has announced that more guidance for individual taxpayers—including how to claim these new deductions—will be released prior to the 2025 filing season.
For now, tax pros should use 2025 as an opportunity to:
- Prepare clients for new reporting categories
- Evaluate payroll and recordkeeping processes
- Educate employers on the upcoming OBBB changes
- Plan for system updates before the 2026 tax year
For official IRS details, visit the IRS’s One, Big, Beautiful Bill page.
Swift Financial Partners: Keeping You Ahead of Every Change
As the tax landscape evolves, Swift Financial Partners is here to help you navigate new laws, reporting requirements, and compliance updates with clarity and confidence.
Stay tuned for more guidance as the IRS continues rolling out OBBB-related updates.
Don’t Miss Out!
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Our team provides step-by-step, one-on-one guidance to help you get approved fast—at no cost to you. With our Free EFIN program, you’ll be ready to e-file with confidence this tax season.
Get your Free EFIN Assistance here.
Before you can file returns, you need an EFIN (Electronic Filing Identification Number) from the IRS. The application can feel overwhelming—but we make it easy.
Our team provides step-by-step, one-on-one guidance to help you get approved fast—at no cost to you. With our Free EFIN program, you’ll be ready to e-file with confidence this tax season.
