Compliance

What Employers Need to Know: Penalty Relief for 2025 Reporting Under the One, Big, Beautiful Bill

Under the new One, Big, Beautiful Bill, employers get a temporary pass on reporting penalties for tips and overtime in 2025—but there are strings attached.

By NomadicTax Research Team • 5-8 min read • November 17, 2025

## The New Reporting Rules Under OBBB The One, Big, Beautiful Bill (OBBB), Public Law 119-21, creates new requirements for reporting: - **Cash tips** and **qualified overtime compensation** must now be separately reported on information returns like Forms W-2 or 1099. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-provisions?utm_source=openai)) - Employers/payors must also provide statements to employees or payees detailing the cash tips received and occupation, and overtime amounts. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) ## Penalty Relief for 2025 Recognizing implementation challenges, the IRS and Treasury issued **transition penalty relief** via Notice 2025-62: Employers and payors will **not be penalized** for failing to: - Provide separate accounting of cash tips or list the occupation of the tip recipient. - Separately report total qualified overtime compensation. ([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 relief is only for **tax year 2025**, and is conditional on filing a **complete and correct return** or statement overall. ([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)) ## What Employers Should Do Now 1. **Audit existing systems & payroll processes** to see if you're ready to report tips and overtime separately. Even though penalties are waived in 2025, expect full compliance to begin 2026. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-no-changes-to-individual-information-returns-or-withholding-tables-for-2025-under-the-one-big-beautiful-bill-act?utm_source=openai)) 2. **Provide employees with information**: occupation codes, statements of cash tips, hours or details of overtime. Even with relief, sharing helps employees claim deductions properly. ([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. **Check Forms**: While Forms W-2 and 1099 will not be updated for 2025 to reflect these new reporting items, box 14 may be used for overtime compensation, or other attached 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)) 4. **Plan for updates**: New forms, withholding tables, and software upgrades are forthcoming for 2026 to support OBBB. Join IRS webinars or monitor guidance. ([irs.gov](https://www.irs.gov/newsroom/irs-announces-no-changes-to-individual-information-returns-or-withholding-tables-for-2025-under-the-one-big-beautiful-bill-act?utm_source=openai)) ## Implications for Employees & Payees - Employees in tipped occupations can deduct “qualified tips,” up to $25,000; Deduction phases out over AGI thresholds. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) - Similarly, qualified overtime compensation (the “half” portion over base pay) may be deductible, with limits, again subject to reporting. ([irs.gov](https://www.irs.gov/newsroom/one-big-beautiful-bill-act-tax-deductions-for-working-americans-and-seniors?utm_source=openai)) ## Example Scenario **Scenario**: Sarah works in a restaurant (a “tipped occupation”). In 2025, she receives $10,000 in cash tips, but her employer does not provide an occupation code or separate tip accounting in her wages statement. - Under OBBB, Sarah may still be eligible to deduct her qualified tips. The employer is protected from penalties as long as their overall return is otherwise correct. ([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 Takeaways Employers get temporary relief, but **momentum toward full compliance is building**. Employees in tipping or overtime roles should prepare to rely on new reporting items. Start now to align systems and policies for the transition.