Overview of the New Requirements
In 2025, through the One, Big, Beautiful Bill (OBBB), Congress introduced new information reporting requirements affecting employers and payors. Two key items must now be reported:
- The cash tips received by employees, including their occupation; and
- The qualified overtime compensation paid during the year.(irs.gov)
These changes were intended to increase transparency and ensure individuals can claim corresponding deductions when filing their tax returns. The reform removes ambiguity over what must be reported—and what employers must disclose.(irs.gov)
Penalty Relief in 2025: What Employers Need to Know
Understand that 2025 is considered a transition year. The IRS and Treasury have issued Notice 2025-62, which provides penalty relief for employers who fail to fully implement these reporting requirements in 2025. Key points include:
- No penalties under sections 6721 (failure to file correct information returns) or 6722 (failure to furnish correct payee statements) will be imposed in 2025 so long as the employer files the full return or statement otherwise correctly. (irs.gov)
- Employers are encouraged—but not required—to provide separate accounting for cash tips or qualified overtime, and to include occupation codes. Such information helps employees take deductions properly. (irs.gov)
- Forms W-2 and 1099 are not yet redesigned for OBBB reporting changes. Therefore, employers may use supplemental statements or Box 14 of W-2 to furnish overtime reporting.(irs.gov)
Practical Steps for Employers & Payors
To prepare, organizations should take action now to minimize risk in 2026 when full enforcement begins:
- Audit your payroll systems to ensure they can capture cash tips, occupation codes, and overtime data.
- Begin or update processes to track tips and overtime separately.
- Develop supplemental employee statements or use Box 14 for overtime for 2025 filings.
- Train payroll, HR, and accounting teams about these new requirements and upcoming enforcement.
Scenarios & Examples
| Scenario | Action in 2025 | Concern for 2026 |
|---|---|---|
| Restaurant staff receiving large amounts of cash tips | May not separate by occupation—safe in 2025 under relief | Must begin capturing occupation + tip breakdown |
| Worker with frequent overtime shifts | Might not separately report overtime totals in 2025 | Systems should record overtime separately going forward |
| Payroll processor using legacy software | May deliver via supplemental statements | Systems will need proper forms complying with revised W-2 and W‐9 regulations |
Broader Impacts & Compliance Advice
While penalties are temporarily relaxed, employee trust and accurate individual reporting make early compliance worth the effort. Also:
- Employees may rely on employer-provided occupation and earnings/tips data to maximize deductions.
- Businesses with multiple states or international operations should check for overlapping rules or reporting obligations.
Bottom Line
2025 offers a grace period under Notice 2025-62 for the OBBB’s new reporting requirements, but enforcement and penalties begin in 2026. Employers who take proactive steps now—updating systems, improving accounting practices, and training staff—will avoid complications once enforcement begins.