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)
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)
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)
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)
- Communicate with employees and payees: Share what info you can—tip amounts, roles—via statements or portals, so individuals can use them.(irs.gov)
- 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)
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)
- 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)
- 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)
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.