Compliance

Navigating Penalty Relief for Tip, Overtime Reporting and Car Loan Interest Under OBBB

New reporting requirements under the One, Big, Beautiful Bill introduce deductions and information statements for tips, overtime, and car loan interest—but transition relief gives you breathing room. Here’s what you need to know.

By NomadicTax Research Team • 5-8 min read • November 19, 2025

## Compliance changes under the One, Big, Beautiful Bill OBBB introduces significant new rules for **cash tips**, **qualified overtime compensation**, and **certain passenger vehicle loan interest**, effective **tax year 2025**. Employers, payors, and payees must begin preparing now. ([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’s required - **Tips (“No tax on tips”)**: Eligible employees/self-employed individuals in tipped occupations may deduct qualified tips if reported via W-2, 1099, or Form 4137. Employers/payors must issue statements showing cash tips and occupation codes. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai)) - **Overtime compensation**: Qualified overtime can be deducted similarly; employers must report the total amount paid. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai)) - **Car loan interest reporting**: Under new Sec. 6050AA requirements, businesses must report interest on qualified vehicle loans received in business trades. Vehicle must be “specified passenger vehicle” and meet criteria under OBBB. ([irs.gov](https://www.irs.gov/irb/2025-45_IRB?utm_source=openai)) ### Penalty Relief / Transition Relaxation The IRS recognizes many entities aren’t yet ready. For tax year 2025, **Notice 2025-62** offers penalty relief: - No penalties for failing to separately report tips amounts or occupation, or overtime totals, **if** a correct return is filed with complete, correct statements to payees. ([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)) - Forms W-2, 1099 won’t be updated in 2025 for these changes—so leniency applies. ([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)) - For vehicle loan interest: recipients can satisfy reporting by providing statements to borrowers of total interest received in 2025. ([irs.gov](https://www.irs.gov/irb/2025-45_IRB?utm_source=openai)) ## What you should do now ### For Employers / Payors - Start designing processes to capture occupation codes, tip totals, overtime amounts. Even if no penalty yet, better data collection ensures smooth transition. - Begin drafting templates for statements or online portals to show required info to employees/payees. - Coordinate with payroll and accounting systems to integrate new reporting fields. ### For Individuals / Employees - Keep records of your tips and overtime—especially if you receive cash tips or work in industries where overtime is common. - Verify your W-2 and other statements include the info required once reporting begins. ## Example Maria owns a restaurant with staff who receive cash tips. She’s been paying these no differently than in the past. Starting 2026, she’ll need to track cash tips by employee, including their occupation codes, and generate statements even if the taxes haven’t changed. But for tax year 2025, under transition relief, she won’t face penalties if she later files correctly and provides accurate statements to staff. Nathan, a delivery driver who earns overtime and gets cash tips: He should hold onto his records so he can deduct qualified tips and overtime on his 2025 taxes—once employers begin supplying required statements. ## Big picture These changes under OBBB represent a shift toward transparency and equity—especially for tipped workers and those earning overtime. While the rules bring extra effort, the transition relief for 2025 and phased requirements give most stakeholders time to adjust.