Compliance
Navigating New Penalty Relief Under the “One, Big, Beautiful Bill” Reporting Requirements
Employers have new temporary relief in 2025 for failing to separately report cash tips and qualified overtime under the OBBB; here’s what this means in practice for payroll management.
By NomadicTax Research Team • 5-8 min read • November 23, 2025
## What Is the “One, Big, Beautiful Bill” Reporting Requirement?
The “One, Big, Beautiful Bill” (OBBB) brought in new information reporting obligations starting with tax year 2025. Employers and payors are now required to separately report **cash tips** and **qualified overtime compensation** on Forms W-2, 1099, or other payee statements. The aim is to increase transparency around earnings that often go unreported and improve tax compliance. ([irs.gov](https://www.irs.gov/government-entities/federal-state-local-governments/news-for-federal-state-and-local-governments?utm_source=openai))
## Penalty Relief Announcement for 2025
**Notice 2025-62**, issued by the Treasury Department and IRS, provides important **transition relief**. For tax year 2025, employers and payors will _not be penalized_ for failing to:
- Provide a separate accounting of amounts reasonably designated as cash tips or identifiers of the occupation of tip-earning employees.
- Separately state total qualified overtime compensation.
This relief applies **only for returns/statements for 2025** and only to the extent that the rest of the return or statement is otherwise complete and correct. ([irs.gov](https://www.irs.gov/government-entities/federal-state-local-governments/news-for-federal-state-and-local-governments?utm_source=openai))
## What Employers Should Do Right Now
Even with relief, there’s substantial work to prepare:
**1. Review payroll systems**: Make sure your payroll or HR system can track cash tips and overtime compensation separately. Features like coding by occupation may need updating.
**2. Update internal policies**: Employers should define how tips are designated, and how overtime qualifying hours are calculated. Ensure employees are notified of any changes.
**3. Communicate with staff**: For tip earners, share how cash tips and occupation codes will affect their statements. Transparency helps avoid confusion.
**4. Ensure rest of the forms are accurate**: The relief only applies if the **non-OBBB** parts of the W-2/1099 are correct. Mistakes elsewhere may still trigger penalties.
**5. Plan for future years**: Relief lapses after 2025—so implement systems now to ensure full compliance starting 2026.
## Practical Examples
- **Restaurant employer**: Suppose you employ servers who earn cash tips and you pay overtime. In 2025, if you provide their W-2 without detailing their cash tips separately, you’ll be okay under the relief—so long as every other part of the form is accurate. From 2026 on, you’ll need the proper breakdown to avoid penalties.
- **Stand-alone gig workers**: If your business pays contractors and doesn’t currently distinguish qualified overtime or tip occupation, 2025 allows some leeway—but consider reworking your contracts or payment systems before 2026.
## Key Takeaways
- **Transition year only**: 2025 has special relief—don’t assume it’ll last.
- **Systems readiness matters**: Build or modify your payroll systems in 2025 so you’re ready for full compliance from January 1, 2026.
- **Accuracy still required elsewhere**: Mistakes outside OBBB-related items may still bring penalties.
Effectively, this relief gives employers a breathing space to adapt—but efficient preparation can make all the difference when the full rules kick in.