Compliance
Compliance Alert: Penalty Relief and Reporting Shifts Under the One, Big, Beautiful Bill for Tax Year 2025
The OBBB brings new reporting duties for employers and businesses—but recent IRS announcements offer transitional penalty relief. Here’s what compliance now requires.
By NomadicTax Research Team • 5 min read • November 19, 2025
## What’s New Under OBBB Reporting Requirements
The One, Big, Beautiful Bill imposes multiple new information reporting requirements for tax year 2025, among them:
- Separate accounting of **cash tips** by occupation. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
- Reporting **qualified overtime compensation** separately. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
- Reporting **interest received** from specified passenger vehicle loans under new section **6050AA**. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
## Transitional Penalty Relief: What’s Being Offered
Given implementation challenges, the IRS and Treasury provided guidance to limit penalties for TY 2025:
- Employers/payors who fail to provide separate cash tip amounts or occupation codes, or fail to separately report overtime *won’t be penalized* if returns and statements are otherwise complete and correct. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-penalty-relief-for-tax-year-2025-for-information-reporting-on-tips-and-overtime-under-the-one-big-beautiful-bill?utm_source=openai))
- For vehicle loan interest reporting under § 6050AA, payors can satisfy requirements by providing a statement of total interest for 2025; penalties under sections 6721/6722 will not apply in cases following the outlined method. ([irs.gov](https://www.irs.gov/irb/2025-45_IRB?utm_source=openai))
## Action Steps for Employers & Payors
- **Review payroll systems**: Ensure they can track occupation codes and overtime separately as required. If not yet ready, ensure a method to provide statements to payees accurately.
- **Recordkeeping matters**: Keep records of cash tips by occupation and overtime classified as “qualified overtime compensation” to ensure compliance if relief does *not* apply in later years.
- **Documentation for vehicle loan interest**: Create or update statements for calendar 2025: total interest received by recipients under § 6050AA to both IRS filings and recipient statements; maintain data in case of audit.
## Example Scenarios
- A restaurant fails to record occupations of tipped workers but provides reports with tip amounts and correct transactions: during 2025, relief is available if overall return is correct.
- A small lender receives interest under a specified passenger vehicle loan. Provided it gives recipients a total interest statement in the required document, and files required return, penalties are delayed under transitional guidance.
## Pitfalls to Avoid
- Relying on penalty relief indefinitely—transitional relief is **only for tax year 2025**, so falling behind now can lead to issues in 2026.
- Failing to communicate clearly with payees/employees: recipients must receive statements so they can report deductions or exclusions properly.
- Ignoring occupation reporting for tips: without proper documentation, employers could lose relief or expose themselves to penalties in subsequent periods.
Understanding your new obligations and taking timely action will help you stay compliant and avoid surprises when enforcement begins in 2026.