The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have released new guidance offering penalty relief for employers and other payors regarding the One, Big, Beautiful Bill (OBBB) information reporting requirements.
Under Notice 2025-62, the IRS will not impose penalties on employers and payors who fail to file or provide correct information returns related to cash tips and qualified overtime compensation for tax year 2025. This temporary relief applies as long as filers submit otherwise complete and accurate returns and payee statements.
Key Provisions of the Penalty Relief
- No penalties for failing to separately report cash tips or the occupation of the tip recipient.
- No penalties for failing to separately report qualified overtime compensation.
- Relief applies only to 2025 returns and statements.
- Intended to give businesses time to update systems and processes before full enforcement begins.
Transition Period for Compliance
The Treasury and IRS recognize that many employers lack the systems or procedures to properly record and report this new information. Additionally, the IRS confirmed that Forms W-2 and 1099 for 2025 will not be updated to include OBBB-specific reporting fields.
As a result, tax year 2025 will serve as a transition period for both enforcement and administration of these new requirements.
Although not mandatory to receive penalty relief, the IRS encourages employers to:
- Provide employees—especially those in tipped occupations—with separate accounting of cash tips and occupation codes to assist in claiming deductions.
- Supply separate accounting for overtime compensation, ensuring employees can claim deductions accurately on their 2025 tax returns.
Employers can share this information through online portals, written statements, secure digital methods, or Box 14 of Form W-2 for overtime reporting.
Overview of New OBBB Reporting Requirements
No Tax on Tips
Under the OBBB, certain employees and self-employed individuals may deduct qualified tips reported on a Form W-2, Form 1099, or Form 4137. Employers must file returns showing:
- Total cash tips received during the year.
- The occupation of the person receiving those tips.
No Tax on Overtime
Eligible workers can also deduct qualified overtime compensation reported on their W-2 or 1099. Employers must report the total amount of qualified overtime pay to both the IRS and the taxpayer.
Next Steps: Additional Guidance Coming Soon
The IRS has announced that additional guidance for individual taxpayers will be released soon. This upcoming notice will explain how to claim deductions for qualified tips and qualified overtime compensation when filing 2025 tax returns.
