Compliance
IRS Penalty Relief under the One, Big, Beautiful Bill: What Employers Must Know
Employers face new reporting rules for tips and overtime—here’s what relief applies in 2025 and how to comply amid evolving requirements.
By NomadicTax Research Team • 5-8 min read • November 18, 2025
## What the “One, Big, Beautiful Bill” Enacts Regarding Reporting
Congress's One, Big, Beautiful Bill introduces two new information reporting requirements for tax year 2025:
- **Cash tips and occupation codes** must be separately reported.
- **Qualified overtime compensation** must also be separately reported.
- Employers will need to file corresponding information returns (and provide statements) for these items.([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))
## Penalty Relief for Tax Year 2025: What’s Covered
Because many employers may not yet have systems in place to capture this information:
- Penalties will **not be enforced** in 2025 for failure to separately report cash tips and occupations, or qualified overtime pay.
- The relief only applies if the employer **otherwise files a complete and correct return** for the year.([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))
## Compliance Steps Employers Should Take Now
To avoid future penalties and stay ahead:
1. **Update Payroll Systems**
Make sure payroll or HR systems can record and output separate cash tips, occupation codes, and qualified overtime amounts.
2. **Provide Clear Statements to Employees**
Even while penalties are suspended, giving employees statements or access to info (e.g., via online portal or Box 14) helps with whether they can claim deductions.([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))
3. **Train Staff**
Educate payroll team, HR, and managers on definitions: what counts as qualified overtime, what is a tipped occupation, etc.
4. **Audit Existing Policies**
Are you already capturing similar data? How accurate are your systems? If early improvement is possible, start now rather than fall behind once penalties are reinstated.
## What This Means for Employees and Tax Professionals
- Employees may use statements to claim deductions for qualified tips or overtime compensation.
- Tax professionals should prepare to see new line items or documentation.
- Employees in tipped occupations should ensure their employers provide details—though penalties are suspended this year for omission.([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))
**Example:**
A restaurant employs servers who earn cash tips. Their employer doesn’t yet track occupation codes separately. For 2025, they’ll benefit from relief. Meanwhile, the employer should implement systems in 2025 so they can fully comply for 2026 filings.
## Key Deadlines & Forward View
- The transition relief is only for tax year 2025. Penalties will apply beginning with filings for tax year 2026 unless systems are in place.
- Monitor IRS guidance and Notice 2025-62 for details.
- Plan budgets for system updates and staff training in 2025.
**Category:** Compliance
**Tax Home:** Global
**Author:** NomadicTax Research Team
**Read Time:** 5-8 min
**Published:** true