Compliance
Employer Obligations Under the “One, Big, Beautiful Bill”: Tips & Overtime Reporting
New guidance explains employers’ obligations for reporting cash tips and qualified overtime under recent legislation—key compliance moves employers must know.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## Overview of One, Big, Beautiful Bill (OBBB) Reporting Rules
The “One, Big, Beautiful Bill” (OBBB) mandates new **information reporting requirements** for cash tips and qualified overtime compensation. Employers must report both accurately in tax year 2025, or face potential penalties. ([irs.gov](https://www.irs.gov/newsroom?utm_source=openai))
To ease the transition, the IRS has offered **penalty relief** for employers who make a good faith effort to comply. This relief is specifically for reporting cash tips and overtime in 2025. ([irs.gov](https://www.irs.gov/newsroom?utm_source=openai))
## What Employers Need to Do Now
- **Review payroll systems**: These systems should be capable of tracking cash tips separately and capturing overtime compensation consistently.
- **Identify eligible occupations**: The IRS has published a list of **nearly 70 occupations** that “customarily and regularly receive tips.” Employers in those industries must report accordingly. ([eitc.irs.gov](https://www.eitc.irs.gov/newsroom/topics-in-the-news?utm_source=openai))
- **Train staff and prepare for audits**: Given the new rules, ensuring staff understands the definitions of cash tips vs non-tip income is essential.
## Actionable Steps & Timelines
1. **System and policy updates** – Complete by the end of 2025 to reflect new reporting for 2025 incomes.
2. **Payroll provider coordination** – Check that third-party payroll vendors have implemented tracking changes.
3. **Collect occupation data** – Ensure job titles align with IRS list of tipped occupations. This may require job description reviews or title updates.
4. **Documenting efforts** – Keep records of steps taken (software upgrades, staff training) to support a claim of good faith in case of IRS review.
## Example Case
Sarah owns a small restaurant. Her staff includes bartenders, servers, and barbacks. The IRS list confirms bartenders and servers are tipped occupations; barbacks generally not. For tipped employees, she’ll need to report cash tips. She upgrades her payroll software and rolls out training in December 2025 to meet the requirement. If any errors happen early in 2025, her documentation helps support penalty relief.
## For Employees & Workers
- Record cash tips accurately and report them timely. Keep good records (tip logs, digital app receipts).
- For overtime, ensure that premium pay is clearly separated and reported.
## Potential Risks for Non-Compliance
- Penalties under sections 6721 and 6722 for incorrect or late information returns and statements.
- Misclassification of employees vs contractors could add complexity.
## Summary
The One, Big, Beautiful Bill creates new reporting burdens for employers in tipped and overtime-paying occupations—but the IRS is extending penalty relief for 2025 for those who make good faith efforts. Align systems, define occupations, train teams now to ensure compliance when filing season arrives.