Treasury & IRS Provide Penalty Relief for Information Reporting on Tips and Overtime

Sourced from the IRS Press Release

The Department of the Treasury and the Internal Revenue Service (IRS) has issued guidance, Notice 2025-62, providing penalty relief to employers and other payors for tax year 2025 regarding the new information reporting requirements for cash tips and qualified overtime compensation under the One Big Beautiful Bill Act (OBBB).

Employers will 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 provided for tax 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 IRS has announced that Forms W-2 and 1099 for tax year 2025 will not be updated to account for the OBBB-related changes. Therefore, tax year 2025 will be treated as a transition period for IRS enforcement and administration of the new information reporting requirements for cash tips and qualified overtime compensation under the OBBB.

Employers and payors are encouraged 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 tax 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.