global Tax IRS Gives Employers 2025 Reporting Relief for Cash Tips and Overtime Under OBBBA December 09, 2025 Attention employers…the IRS has announced 2025 reporting relief under the OBBBA. Employers and other payers will not face penalties for tax year 2025 if they do not separately report cash tips or qualified overtime amounts (required under new tax law). Here’s what you should know. The IRS has announced that employers will not face penalties in 2025 for failing to separately report cash tips, tipped employees’ occupations, or qualified overtime pay under the OBBBA. This relief gives employers time to update payroll systems and forms while still helping employees claim new deductions for tips and overtime. Here’s an inside look at the change. Quick Takeaways For tax year 2025, employers won’t face penalties for not separately reporting cash tips, tipped employees’ occupations, or qualified overtime pay.2025 is considered a transition year as payroll systems and forms (W‑2, 1099) are not yet updated for OBBBA requirements.Employers are encouraged but not required to share tip and overtime information with employees to help them claim new deductions.Information can be provided via online portals, written statements, or Box 14 on Form W‑2 for qualified overtime. Why This MattersThese new OBBBA reporting rules could have created a major compliance burden for employers, especially with payroll systems, software, and tax forms not yet updated for 2025. The IRS’s penalty relief gives businesses breathing room to adapt without risking fines, while still helping employees capture valuable new deductions for tips and overtime. In short, it protects employers during a transition year and ensures workers don’t miss out on tax benefits intended to boost take-home pay.What Changed Under OBBBA’s Tip and Overtime Reporting Rules?Under OBBBA, employees can claim new above-the-line deductions for qualified tips and overtime wages for 2025 through 2028. However, the new law also requires employers to separately report designated tip amounts, qualified overtime pay, and the occupation of workers who receive tips. The IRS acknowledged that employers may not yet have systems, payroll configurations, or form updates in place to track or report this information. Check out our blog for all the details: IRS Releases Guidance on New Tips and Overtime Tax Rules.What is the new penalty relief? The IRS released new guidance saying employers will get a break on some of the new reporting rules tied to tips and overtime under the OBBBA for the 2025 tax year. For the 2025 tax year, employers and payers will not face penalties for failing to:Provide a separate accounting of cash tips,Report the occupation of tipped employees, orReport the total amount of qualified overtime pay.This relief applies only if the employer otherwise files complete and correct returns or statements.What is the reason for the penalty relief?The IRS recognizes that most payroll systems are not yet set up to track and report this information, and forms W-2 and 1099 will not be updated in time for the 2025 tax year. 2025 is being treated as a transition year. What should employers do to prepare for the changes?Though not required, the IRS is encouraging employers to share certain information with employees and payees to make it easer for workers to claim deductions for tips and overtime on their 2025 taxes. For tipped workers:Provide occupation codes, andGive a separate accounting of cash tips received.For overtime pay:Provide a separate accounting of qualified overtime compensation, which can also be included in Box 14 of the employee’s Form W‑2.Employers can share this information through online portals, additional written statements, or other secure methods.This approach ensures employees have the information they need to claim deductions for qualified tips and overtime compensation on their 2025 tax returns while giving employers time to update systems and processes.
