Compliance
IRS Penalty Relief under the “One, Big, Beautiful Bill” for Reporting Tips & Overtime
Recent IRS guidance offers penalty relief for employers who must comply with new reporting rules for cash tips and overtime under the One, Big, Beautiful Bill Act.
By NomadicTax Research Team • 5-8 min read • November 22, 2025
## What’s Changing
On November 5, 2025, the Treasury and IRS released guidance (IR-2025-110) providing **penalty relief** for tax year 2025 for employers and other payors with respect to new information-reporting requirements for **cash tips and overtime compensation** under the “One, Big, Beautiful Bill” (OBBB) Act. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-current-month?utm_source=openai))
These reporting obligations are usually strict, with penalties for late or incorrect filings. The new guidance gives time and flexibility during this transition period.
## Who Is Affected
* Employers in the hospitality, retail, food service, and similar industries where cash tips are common.
* Businesses where employees receive overtime and where payors historically may not have reported some overtime or all cash tips.
* Tax and payroll departments that need to upgrade systems or processes to capture new data under OBBB.
## How to Take Advantage of Relief
1. **Evaluate your current processes.** Identify where cash tips and overtime pay are currently not well tracked or reported.
2. **Document efforts.** Maintain records of when you became aware of new compliance requirements and steps you're taking toward compliance—good faith efforts may reduce risk even if issues arise.
3. **Review updated IRS FAQs and Fact Sheets.** These resources clarify responsibilities and relief terms. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
4. **Plan system upgrades now.** Implement or update payroll systems, train staff, adjust internal policies so you’re compliant from 2026 onward.
## Example Scenario
Ace Bar & Grill has been manually tracking cash tips but hasn’t shared detailed reports for overtime. Under the new rule, they’ll need to report both accurately. Because Ace is operating in good faith, documenting their process upgrades and using the penalty relief period, they avoid major fines while transitioning their payroll software system.
## Broader Impacts & Compliance Risks
* **Financial risk**: If companies miss the transition and penalties kick in afterward, consequences can be steep.
* **Employee relations**: Transparent tip policies and overtime reporting help avoid disputes.
* **Tax risk management**: Companies may need to consult tax advisors to ensure reporting policies align with IRS rules and that tips are properly allocated or distributed.
## Take-Away Actions
* Review the official IRS announcement IR-2025-110. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-current-month?utm_source=openai))
* Adjust your payroll framework to capture both cash tips and overtime in reporting.
* Use the relief period wisely—make real compliance efforts now.
* Monitor IRS further guidance in late 2025 or early 2026 to ensure no surprise obligations.
By proactively adapting now, employers can minimize penalties, strengthen internal record-keeping, and support fairer compensation practices. Compliance under the OBBB can be challenging—but with this relief, it’s an achievable goal.