What's New: Reporting Obligations You Can't Ignore
Qualified Tips & Overtime Compensation
Beginning in 2025, employers are required to report qualified tips and qualified overtime compensation under section added by OBBBA. Failure to provide correct information returns or payee statements triggers penalties under sections 6721 (for returns) and 6722 (for statements). However, Notice 2025-62 delivers penalty relief for 2025 if you're getting up to speed this year. (irs.gov)
Reporting Borrow Fees and Securities Lending Income
IRS proposed regulations (Notice 2025-63) clarify rules for sourcing borrow fees in securities lending and sale-repurchase transactions. These fees will be sourced based on the residence of the recipient—critical for expatriates, digital nomads, and cross-border entities. (irs.gov)
Who's Affected
- Employers in service industries (restaurants, salons) must update payroll/reporting systems for tips and overtime.
- Financial institutions and investment entities handling securities lending or repo transactions.
- Individuals receiving tips or overtime who must report to the employer and/or via information returns.
Action Steps for Compliance
- Audit payroll systems: Ensure your payroll, timekeeping, and POS systems capture qualified tips and overtime in a way that supports reporting.
- Educate staff & management: Tip reporting requirements may require adjustments in shifts, allocation, or tracking. Transparency helps avoid errors.
- Work with financial advisors if you receive securities lending or repo income—how you document residency and earning location now matters.
- Schedule compliance calendar: Because penalties are waived in 2025 under Notice 2025-62 if in good faith, aim to have systems tested in Q4 2025 to ensure full compliance in 2026.
Useful Example Scenarios
| Scenario | Risk Before 2025 | Compliance Strategy |
|---|---|---|
| A restaurant owner failing to track tip pools centrally | Penalties for incorrect statements to employees | Implement centralized tip tracking software and reconcile monthly |
| A long-term investor in foreign securities lending | Uncertainty over where fees are sourced | Maintain residence records and treat income as foreign only when appropriate under IRS guidance |
Penalties & Relief Details
- Section 6721 & 6722 penalties are not enforced for 2025, provided attempts to comply are made in good faith. Relief applies only for 2025. (irs.gov)
- Carryover relief does not extend to years after 2025—so systems must be ready by calendar year 2026.
Bottom Line
This is a transitional window—2025 is your buffer. Set systems, educate teams, document everything. Come 2026 the IRS will be watching. Proper compliance now avoids costly penalties, risk of audit, and reputational harm.