Compliance
One, Big, Beautiful Bill: Transition Relief for Employer Reporting of Tips & Overtime
For tax year 2025 only, employers have relief from penalties under new reporting rules for tips and qualified overtime—how to comply and what’s expected next.
By NomadicTax Research Team • 5-8 min read • November 24, 2025
## Context
The **One, Big, Beautiful Bill (OBBB)** introduced new **information reporting requirements** for both cash tips and **qualified overtime compensation**, requiring payors (employers or others) to report certain amounts on Forms W-2, 1099, etc., and provide statements to those receiving income. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-of-2025-provisions?utm_source=openai)) However, many payors lack systems or guidance to fulfill all requirements immediately. To ease the transition, the IRS issued **Notice 2025-62**, providing **penalty relief** for tax year 2025. ([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))
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## What the Relief Covers
- No penalties under § 6721 (information returns) or § 6722 (payee statements) for failing to:
- Provide separate accounting of **cash tips** or occupation of tip recipient.
- Separately provide total **qualified overtime compensation**.
- **Eligible only for tax year 2025**, and only if otherwise the payer files a **complete and correct return or statement**. Partial compliance helps, though full compliance will be required in future years. ([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))
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## What Employers Should Do Now
1. **Start tracking** cash tips and overtime separately—even if systems don’t yet report these items in the required manner.
2. Provide employees/payees with information on tips, occupancy, and overtime when possible (e.g., via Form W-2’s Box 14 or equivalent statement). This helps employees later claim 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))
3. Review current payroll and accounting systems to identify gaps in tracking occupations or tip data. Plan upgrades.
4. Watch for further IRS guidance on how individual taxpayers should claim the deductions when filing 2025 returns.
5. Educate employees about what documentation or pay statements they should expect, to avoid misunderstandings.
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## Implications for Wage Earners & Self-Employed Individuals
- Individuals who receive **qualified tips** or overtime can deduct them under the OBBB—separately reported or self-reported depending on employer compliance.
- If employers don’t provide required statements in 2025, individuals should still retain records since reporting may be necessary when computing deductions.
- Be ready for **full reporting and potential penalties** in tax year 2026 if employers/payors haven’t adapted by then.
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## Looking Ahead
- Employers should aim for full compliance for tax year **2026 and beyond**, since penalty relief covers only 2025.
- Legislative or regulatory updates might clarify income thresholds, forms, or implementation details.
- Digital nomads or gig workers working across jurisdictions may be impacted (especially if reporting forms, tips, or overtime interacting with network platforms), so it's important to understand both employer-side and worker-side obligations.
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**Summary:** For 2025, employers have a cushion—not facing penalties for some missing information under OBBB. But systems upgrades and organizational awareness are essential to comply fully starting 2026.