Compliance
What Small Businesses Need to Know: Reporting Requirements & Penalty Relief in 2025
New reporting rules under OBBB bring complexity in 2025—with the IRS offering penalty relief—but you’ll need systems to comply starting 2026.
By NomadicTax Research Team • 5-8 min read • November 17, 2025
## Who’s Affected and Which Rules to Track
The One Big Beautiful Bill introduces several new reporting and withholding requirements, especially for employers and other payors. Key areas include:
- **Cash tips**: Employers must report cash tips separately, including employer accounting of amounts reasonably designated as tips. ([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))
- **Qualified overtime compensation**: Separate reporting required for overtime pay under specified definitions. ([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))
- **Car loan interest reporting** and **new Form 1099-K thresholds** under OBBB affect lenders and platforms. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
- **Employee Retention Credit (ERC)** limitations and FAQs under OBBB for late claims affecting balance sheets and filings. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
## Transition Relief in 2025: What Businesses Can Breathe Easier On
The IRS and Treasury announced **Notice 2025-62** on November 5, 2025, granting penalty relief for tax year 2025 related to misreporting or failure to separately report cash tips, the occupation of tip earners, or qualified overtime compensation—provided payors otherwise file complete and correct returns. ([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))
Additionally, under Fact Sheet 2025-08, the 1099-K threshold will **revert to $20,000** in aggregate gross payments for many payors, which relaxes some reporting burdens temporarily. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
## Action Steps for Compliance
- **Audit your payroll systems** now to ensure they can collect occupation codes, distinguish overtime pay, and capture tip data accurately.
- **Train staff and update policies** to track cash tips and overtime compensation properly. Even in transition, maintaining good records will ease the 2026 compliance shift.
- **Monitor IRS guidance**: Notices and amended forms (W-2, 1099) for 2026 will incorporate OBBB changes. Stay abreast of draft publications, IRS fact sheets, and update periods. ([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))
- **Consult your accountant** if you claimed Employee Retention Credits late or expect to do so—it may affect credit/refund eligibility and timing. ([irs.gov](https://www.irs.gov/newsroom/news-releases-for-october-2025?utm_source=openai))
## Real-World Example
**Scenario**: A restaurant’s payroll department currently has no process to capture tip amounts separately from wages or designate employees’ occupations on records. Without setup in 2025:
- They receive **penalty relief** for TY2025 if they provide complete returns later, even if tip reporting is imperfect during the transition. ([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))
- Moving into **2026**, they must use updated W-2 and 1099 forms (once released) and comply fully—noncompliance will resume penalties. Planning now avoids rushed system overhauls later.
## Bottom Line
OBBB imposes new profile and information reporting burdens, but 2025 offers a grace period. Small businesses and employers should take this time to build compliance infrastructure, update forms, and train relevant parties. Delaying until 2026 could mean unexpected penalties and last-minute scrambling.