New Reporting Requirements Under OBBB
Under the One, Big, Beautiful Bill (OBBB) Act, effective for tax year 2025, employers and payors must now:
- Report amounts reasonably designated as cash tips, including the occupation of the tip recipient. (irs.gov)
- Report total amounts of qualified overtime compensation paid, separately, on Forms W-2, 1099 or other required statements. (irs.gov)
These changes mean HR and payroll systems must track more detailed information and furnish statements to employees/payees.
Penalty Relief During Transition Year (2025)
Recognizing the difficulty of immediate compliance, the IRS has issued Notice 2025-62, which provides penalty relief for tax year 2025 for employers/payors who fail to correctly file the new reporting items—so long as they file and provide otherwise complete and correct returns/statements. Features:
- No penalties for failing to separately account for cash tips or providing value of overtime compensation separately. (irs.gov)
- Relief applies even if W-2 and 1099 forms aren’t yet updated to fully reflect OBBB formatting. (irs.gov)
- Encouragement for employers to still provide as much detail as possible voluntarily. Employers can include that info via employee statements, online portals, or Form W-2 Box 14. (irs.gov)
Best Practices for Employers
- Audit your payroll/reporting systems. Ensure your HR/payroll providers can capture occupation codes, distinguish cash tips and overtime pay, and deposit data securely.
- Train staff handling W-2/1099 processing to understand new coding requirements and the occupation list (yet to be finalized). (irs.gov)
- Document policies around how your business treats tips, shared tips, overtime, and how employees can access this data.
Example Scenarios
| Role | What’s Needed | Suggested Approach |
|---|---|---|
| Restaurant employing tipped staff | Track cash tips, occupation, payee statements | Use POS systems that record tip totals & allocate by employee; provide regular statements and include that info in employee paycheck stub or portal. |
| Company with salaried and hourly staff | Overtime tracking (qualifying overtime under FLSA) | Ensure upper management accounts clearly capture overtime separately, label accordingly on statements. |
Employers who stay aware and take proactive steps now will avoid compliance headaches and penalties once enforcement begins in full for tax years following 2025.