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On November 5th, the Department of the Treasury and the IRS issued guidance to employers and other payors for tax year 2025 regarding new information reporting requirements for the deductions for cash tips and qualified overtime compensation under the One, Big, Beautiful Bill Act (P.L. 119-21, “OBBBA”).
Notice 2025-62 provides penalty relief for tax year 2025 from the new information reporting requirements for cash tips and qualified overtime compensation under the OBBBA to employers and other payors for not filing correct information returns and not providing correct payee statements to employees and other payees.
The new reporting requirements under the OBBBA include:
• No tax on tips: Certain employees and self-employed individuals who receive qualified tips may deduct qualified tips reported on a Form W-2, Form 1099, or reported directly by the individual on Form 4137. Employers and other payors must file information returns with the IRS, or 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 reported on a Form W-2 or Form 1099. Employers and other payors must file information returns with the IRS, or 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.
Pursuant to the notice, employers and other payors 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 and other payors will also not face penalties for failing to separately provide the total amount of qualified overtime compensation. The relief is limited to returns and statements filed and furnished for taxable 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.
The government acknowledged that employers and other payors may not currently have the information required to be reported under the OBBBA, or they may not have the systems or procedures in place to be able to correctly file the additional information with the IRS, or SSA in the case of a Form W-2, and provide it to employees and other payees. In addition, the IRS has announced that it will not update Forms W-2 and 1099 for tax year 2025 to account for the OBBBA-related changes. Therefore, the IRS is treating tax year 2025 as a transition period for enforcement and administration of the new information reporting requirements for cash tips and qualified overtime compensation under the OBBBA.
While not a requirement to receive the penalty relief provided in Notice 2025-62, the IRS encourages employers and other payors 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 taxable year 2025. And the IRS encourages employers and payors 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 taxable 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.
For more information, contact Liskow attorneys Caroline Lafourcade, Tommy McGoey, Kevin Naccari, and Ellie George, and visit Liskow’s Tax and Labor & Employment practice pages.
Notice 2025-62 provides penalty relief for tax year 2025 from the new information reporting requirements for cash tips and qualified overtime compensation under the OBBBA to employers and other payors for not filing correct information returns and not providing correct payee statements to employees and other payees.