Compliance

Navigating Penalty Relief Under the One, Big, Beautiful Bill for Tips, Overtime & Car Loan Interest

The OBBB law introduces complex reporting requirements for employees and lenders—but recent IRS notices offer penalty relief. Here’s how to stay compliant in 2025.

By NomadicTax Research Team • 5-8 min read • November 17, 2025

## Overview of OBBB’s New Reporting Requirements The One, Big, Beautiful Bill (OBBB) includes major changes: employers must start reporting tips and qualified overtime; lenders must report interest on qualified passenger car loans; third-party payment thresholds revert; and new information must be shared with employees/payees. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai)) ## Recent Penalty Relief Notices - **Summary for Tips & Overtime (Notice 2025-62):** Employers won’t be penalized in **tax year 2025** for failing to separately account for cash tips or provide employee payee occupation or for not separately reporting qualified overtime, provided filed returns/statements are otherwise complete. ([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)) - **Car Loan Interest (Notice 2025-57):** Lenders can satisfy new reporting needs by making the total interest statement available by Jan 31, 2026. Penalties under sections 6721 and 6722 will *not* be imposed if they comply with this transition relief. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai)) ## What You Should Do—Practically - **For Employers (with tipped or overtime-eligible staff):** • Begin modifying payroll systems to capture occupation and separate overtime compensation amounts. • For 2025, make sure statements are as accurate and complete as possible; transitional relief is available but limited. • Train payroll or human resources teams on definitions: “occupied tipped work,” “qualified overtime,” etc. - **For Lenders:** • Implement or ensure capability to generate a statement of total car-loan interest by calendar year through portals, monthly/annual statements, or similar methods. • Document the method used in case of audit. • Track whether aggregate interest reaches $600 threshold for individual borrowers. ## Implications for Employees & Individuals - If you're an employee or payee in tipped work: Save statements, track what you're paid in tips and overtime. Even under transitional relief, accurate records will support claiming deductions. - For car-loan borrowers: Retain statements of interest from lenders, as this qualifies for deduction under OBBB for qualified passenger vehicle loan interest paid after Dec 31, 2024 and before Jan 1, 2029. ([irs.gov](https://www.irs.gov/newsroom/treasury-irs-provide-transition-relief-for-2025-for-businesses-reporting-car-loan-interest-under-the-one-big-beautiful-bill?utm_source=openai)) ## Risks and Caveats - Penalty relief is limited to **tax year 2025**. For 2026, full compliance begins. - Employers must still file complete returns; relief does not excuse omissions unrelated to the new OBBB info. - Readiness is essential—systems, statement formats, employee notices must align with IRS/OBBB definitions to avoid post-2025 penalties. ## Example Case **Scenario:** GreenLight Café employs waitstaff. In 2025, it doesn’t separate cash tips by occupation or include separate overtime amounts. Under new IRS guidance, it won’t be penalized (as long as otherwise correct). But next year, GreenLight Café must provide statements showing occupation, cash tips, and overtime detail or risk penalties. Also, Alice, a borrower who took a car loan on an SUV assembled in the U.S., should receive a statement showing total interest paid in 2025 if it exceeded $600—otherwise her ability to deduct might be compromised. ## Key Takeaways - Use the rest of 2025 as a transition period to prep systems. - Implement changes even during the transition so that you’re ready for full enforcement in 2026. - Stay informed—as definition changes, thresholds, notices, and regulations under OBBB gain clarity.