Compliance
Payroll & Tip Reporting Under OBBB: Compliance Guide for Employers in 2025
New requirements for reporting cash tips and overtime under the One, Big, Beautiful Bill (OBBB) bring both obligations and temporary relief—here’s what employers must do.
By NomadicTax Research Team • 5-8 min read • November 17, 2025
## Overview of OBBB Reporting Requirements
The One, Big, Beautiful Bill (OBBB), enacted July 4, 2025, introduced **new information reporting mandates** for employers and other payors regarding:
- **Cash tips**: Amounts designated as tips, and the **occupation** of employees who receive tips.
- **Qualified overtime compensation**: Total overtime pay that qualifies under the law.
These changes aim to reduce under-reporting and ensure correct withholding, tax liability, and statements. ([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))
## Transition Relief Provided for Tax Year 2025
Recognizing that many employers lack the systems or data to comply immediately, the Treasury & IRS issued **Notice 2025-62** offering **penalty relief** for tax year 2025 regarding inaccuracies in tip and overtime reporting. Key relief measures include:
- No penalties for failing to separately account for cash tips or occupation of the tip recipient, **provided** the employer files a complete and correct return or statement in other respects.
- No penalties for failing to separately provide the total qualified overtime compensation.
- Employers not required to update Forms W-2 or 1099 in 2025 for OBBB changes. These will reflect new reporting only in later 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))
## Compliance Strategy Moving Forward
### For Employers and Payors
- **Audit your payroll system**: Identify whether job roles are properly coded for tip occupations. Determine where your records currently capture cash tip totals or overtime separately.
- **Modify job classifications**: Align with IRS guidance on which occupations are regarded as tip-earning under OBBB.
- **Prepare statements for employees/payees**: While separate tip reporting may not be required for 2025, consider including occupation and tip amounts anyway to help employees substantiate deductions.
- **Update your internal policies**: Get ready for OBBB full enforcement in future years—set up systems to capture required data timely.
### For Employees/Payees
- Ask your employer for statements that include occupation and tip amounts, even if not mandated in 2025.
- Keep your own records of tips and overtime, including how you categorize tips (cash, non-cash, etc.).
## Practical Example
**Emma**, a bartender, regularly gets cash tips. Under OBBB, her employer should report the total cash tips and include her occupation. In 2025, her employer may omit separations and still avoid penalties if the rest of the return is complete. But for 2026 and beyond, they'll need to include those specific details.
Meanwhile, **Mike**, who works in hospitality and sometimes earns overtime pay beyond regular hours, should ensure that overtime hours and pay are tracked distinctly in payroll so compliance will be easier when penalties begin.
## Action-Item Checklist for Employers
- [ ] Inventory payroll data: tip amounts, overtime, occupations of tipped employees.
- [ ] Communicate with your software provider or payroll service to ensure OBBB-compliant reporting can be supported in data exports and statement generation.
- [ ] Train payroll staff about the new reporting expectations under OBBB.
- [ ] Monitor IRS guidance or Fact Sheets as they release more examples and covered occupations.
- [ ] Plan for updates to W-2/1099 forms once enforced.
Compliance with OBBB isn’t just about avoiding penalties—it’s about integrity in payroll reporting, employee trust, and reducing audit risk.