Compliance

One, Big, Beautiful Bill: Penalty Relief for Reporting Cash Tips and Overtime in 2025

New reporting requirements for cash tips and qualified overtime under the OBBB start in 2025—but IRS Notice 2025-62 gives employers and payors relief from penalties for reporting mistakes this year.

By NomadicTax Research Team • 5-8 min read • November 22, 2025

## Background: New Reporting Requirements Under One, Big, Beautiful Bill (OBBB) The **One, Big, Beautiful Bill Act**, enacted July 4, 2025, introduced several changes, including requiring employers and payors to report: - Cash tips received by employees, and provide statements indicating occupation and separate accounting of those cash tips. - Qualified overtime compensation amounts paid.([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)) These provisions raise compliance challenges for systems and payroll that have not yet adjusted. --- ## What Notice 2025-62 Does: Transition Penalty Relief for 2025 To ease the burden, IRS issued **Notice 2025-62**, which provides **penalty relief for tax year 2025** for failing to file correct information returns or payee statements under these new rules.([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)) Relief extends to failures in: - Separately accounting for cash tips or the occupation of tip recipients. - Separately providing total amount of qualified overtime compensation. Relief applies only if the employer or payor **otherwise files a complete and correct return/statements**, even without the new, separate information.([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 Employers/Payors Should Do Now - **Gather what is available**: Even if payroll systems don’t yet accommodate the new reporting, begin collecting cash tips, occupations, overtime totals separately. This helps claim deductions by employees and eases future compliance.([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)) - **Communicate with employees and payees**: Share what info you can—tip amounts, roles—via statements or portals, so individuals can use them.([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)) - **Update internal processes and systems**: Payroll, HR, and accounting should start integrating new codes or fields (tip occupation, overtime compensation) for future reports. - **Stay informed for forthcoming guidance**: IRS plans additional guidance for individual taxpayers to claim deductions under these rules.([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)) --- ## Compliance Considerations - Although penalties are waived if separate tip/overtime info is missing, **full, correct returns are still required**. Don’t skip reporting altogether.([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 tipped occupations, the occupation code becomes important for qualifying tips for deduction. Without reporting, employees may face challenges in validating their deductions.([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 and 1099 for tax year 2025 are **not updated yet**, so separate reporting likely through supplemental statements or boxes like Box 14.([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)) --- ## Case Study Example **Scenario**: Joe runs a restaurant. Before 2025, he reports tips as part of gross wages and employees share tips among staff informally. Starting 2025, he must: - Record each tipped employee’s occupation code. - Report cash tips separately and overtime compensation separately on tax returns or via statements. **What Joe does under Notice 2025-62**: - Continues regular reporting of wages. - Adds whatever tip/overtime breakdown info he currently has (e.g., weekly tip logs). - Provides statements to workers explaining tips and occupation code. Penalty relief applies despite missing occupation or separate breakdown if rest of return is accurate. Helps buy time until full compliance. --- ## Summary: Key Takeaways - 2025 is a **transition year**—relief is available, but full returns still required. - Employers/payors should **begin collecting and providing new information** even if systems are behind. - Employees may need statements to claim deductions properly. By planning now, organizations will be ready when reporting requirements become fully enforced in subsequent years.