Compliance
Navigating Penalty Relief for New Reporting Rules Under OBBB
The One, Big, Beautiful Bill (OBBB) introduced new information reporting requirements for tips and overtime—but for 2025, employers get a transition relief period. Here’s how to comply without risk.
By NomadicTax Research Team • 5-8 min read • November 19, 2025
## What New Reporting Rules Have Been Introduced?
The One, Big, Beautiful Bill mandates that employers and payors report three new pieces of information:
- Cash tips received by employees
- The **occupation** of employees in tipped occupations
- Total **qualified overtime compensation**—all via existing forms (W-2, 1099) or provide new statements to employees ([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)).
## What Penalty Relief Has the IRS Offered for 2025?
Notice 2025-62 provides temporary reprieve:
- Employers **won’t be penalized** for failing to include separate accounting of cash tips or providing occupation codes.
- Employers also **won’t face penalties** for omitting totals of qualified overtime compensation.
- Relief is limited to returns/statements filed for **tax year 2025** and requires that the underlying returns are otherwise **complete and correct** ([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)).
## Why Is This Significant for Employers and Employees?
- **Systems upgrade time:** Many payroll systems may not yet capture occupation codes or have separate fields for tips/overtime under OBBB. This lets employers catch up.
- **Employee transparency:** Employees in tipped roles should still receive separate information so they can claim any potential deductions correctly.
- **Forward-looking compliance:** While 2025 offers relief, 2026 and beyond will enforce full rules—so planning ahead is essential.
## Practical Example
- *Small retaurant owner:* Alice doesn’t currently capture occupation codes in payroll software. Under 2025’s transition relief she’s safe from penalties if she files a correct return, even though the occupation code is missing. But in 2026 she must include it.
- *Overtime-heavy workplace:* A warehouse employer that pays large amounts of qualified overtime—must start tracking totals in anticipation of future reporting requirements, even though 2025 is forgiving ([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)).
## Actionable Takeaways
- Conduct an **audit** of payroll systems to identify gaps in reporting occupation, cash tips, overtime.
- Begin implementing fields/staff training now so 2026 filings comply from day one.
- When issuing W-2s or 1099s for 2025, **consider voluntarily giving employees the breakdowns** (tips, overtime, occupation) even if not required, to build good habits.
- Consult with tax advisors or legal counsel to ensure phased compliance and avoid surprises once penalty relief ends.
Understanding transition relief under the OBBB helps you stay compliant and avoid risk. Use 2025 as a learning year to build systems and habits for smooth compliance in 2026 and beyond.