Compliance

Penalty Relief for Employers on Reporting Tips & Overtime Under OBBB in Tax Year 2025

Employers covered by the One, Big, Beautiful Bill now get transition-period penalty relief for new tip and overtime reporting requirements for 2025.

By NomadicTax Research Team • 5-8 min read • November 21, 2025

## Overview of the OBBB Reporting Relief On **November 5, 2025**, the IRS issued guidance under **Notice 2025-62** granting **penalty relief** to employers and other payors for tax year **2025** regarding new information reporting requirements for cash tips and qualified overtime compensation introduced by the **One, Big, Beautiful Bill (OBBB)**. ([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)) This transition relief acknowledges that many entities may not yet have systems in place to capture and report the newly required information in Box 1 (for tips) and overtime compensation separately. ([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)) ## Key Provisions of the Relief - **No penalties** for failing to separately account for cash tips or specifying the occupation of tip recipients in information returns or payee statements 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)) - **No penalties** for failing to separately report **qualified overtime compensation** similarly. ([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 applies only if the employer or payor **otherwise files a complete and correct return**, using the available forms/statements and providing correct payee statements for the rest of the required 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)) ## Employer & Payor Expectations During 2025 Although penalties are waived under Notice 2025-62, the IRS **encourages** employers to provide separately: occupation codes, separate tip amounts, and overtime compensation. Doing so assists employees in claiming their deductions and ensures smoother compliance when penalties begin. ([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)) Also, note that **Form W-2 and 1099** for 2025 will **not** be updated to incorporate the new OBBB changes. Employers are thus encouraged to use alternate methods (online portals, additional statements, Box 14, etc.) to provide this required info. ([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)) ## Actionable Advice for Employers - Begin updating payroll and recordkeeping systems in **2025** to capture cash tips, occupation, and overtime compensation in a format that will satisfy OBBB going forward. - Communicate with employees: Let them know they may need occupation codes or tip/overtime breakdowns for tax filings. - Plan for 2026 when OBBB requirements are enforceable with penalties; consider engaging payroll providers or software vendors about changes. ## Sample Scenario **Restaurant employer** with tipped staff: For tax year 2025, they need not yet worry about IRS penalties for failing to separately report cash tips or occupations on payee statements. But if they don’t collect tip amounts or occupation codes, staff may face challenges in deducting “qualified tips” and “qualified overtime compensation” on their 2025 individual returns. Clear staff notices and internal reports help. Employers operating in the retail sector with overtime hours will also benefit from avoiding penalties if they document overtime compensation properly—even if the W-2 doesn’t explicitly list it per OBBB. Use Box 14 or separate statement as best practice. ## Implications for Employees Employees should save any documents from their employers that detail cash tips, occupation, or overtime compensation—even non-official statements. These will be essential for claiming deductions this year and will help establish a precedent for future filings.