Compliance
Compliance Spotlight: Penalty Relief for ‘Tips and Overtime’ Reporting under One, Big, Beautiful Bill
New transitional relief eases penalty risks for employers in reporting cash tips and overtime compensation under the One, Big, Beautiful Bill for tax year 2025.
By NomadicTax Research Team • 5-8 min read • November 19, 2025
## Background: One, Big, Beautiful Bill (OBBB)
The OBBB (Public Law 119-21) passed in mid-2025 introduced significant changes to individual and employer reporting requirements, including **new information reporting duties for cash tips and qualified overtime compensation**. Under OBBB, employers must file updated information returns and furnish more detailed statements to employees/payees. ([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))
## What the Penalty Relief Offers
- **Notice 2025-62** provides **transition penalty relief** for tax year 2025. Employers/payors will *not be penalized* for failing to provide separate accounting of cash tips, the occupation of tip recipients, or separate amounts of qualified overtime compensation. This relief applies if the employer or payor still files a **complete and correct return** apart from these new details. ([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))
- Forms W-2 and 1099 **will not yet be updated for 2025** to include these new reporting items; the IRS recognizes workplaces may lack systems to capture this data now. ([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))
## Implications for Employers and Employees
- Reduced risk of **penalties** for 2025 if you meet baseline compliance in overall reporting. Relaxed enforcement on newer, more burdensome OBBB requirements during transition.
- **Employees/payees** should still aim to receive statements or information about cash tips and overtime, since starting tax filing they’ll need this data to claim deductions under the OBBB. Employers are encouraged to supply occupation codes, cash tips accounting, etc. even during transition. ([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))
## What Businesses Need to Do Now
- **Inventory your reporting systems**: Determine whether you are currently tracking occupation codes, cash tips separately, and overtime beyond regular pay under FLSA. If not, build capacity now for full compliance in 2026.
- **Communicate with employees/payees**: Let them know what information may be available, that you’ll aim to provide it even if not yet legally required with respect to penalties.
- **Consult your payroll and HR vendors** to plan system upgrades for handling OBBB reporting items starting in the 2026 tax year.
## Example Scenario
An employer has 100 tipped employees. For 2025, they are required to file Form W-2s showing total wages, but OBBB expects separate breakdowns of cash tips and occupation. Thanks to the penalty relief in Notice 2025-62, if the employer provides standard wage data correctly, they will *not* be penalized for omitting occupation or cash tip details during this transition period. However, to enable employees to claim new deductions under OBBB, providing the additional info voluntarily is advantageous.
## Forward-looking Compliance Planning
- For tax year 2026 and beyond, ensure payroll/HR obtains data on: occupation codes, cash tips, qualified overtime, etc.
- Review all payee statements and W-2 reporting workflows.
- Work with tax professionals to anticipate employee claims and deductions, especially for employees heavily dependent on tips or overtime pay.
This transitional relief underlines the importance of staying up to date with OBBB changes — use 2025 as a buffer year, but build readiness for 2026.