The Treasury Department and Internal Revenue Service issued guidance Wednesday that provides penalty relief to employers and other payors for tax year 2025 regarding new reporting requirements for cash tips and qualified overtime compensation under the One Big Beautiful Bill Act.
The relief, set out in Notice 2025-62, provides penalty relief for not filing correct information returns and not providing correct payee statements to employees and other payees. Under the OBBBA, from 2025 to 2028, certain workers won't pay income tax on tips, while overtime pay is partially excluded from taxable income for all workers.
Specifically, employers and other payors "will not face penalties for failing to provide a separate accounting of any amounts reasonably designated as cash tips or the occupation of the person receiving such tips," Treasury and IRS said in a statement released Wednesday.
Employers and other payors will also not face penalties "for failing to separately provide the total amount of qualified overtime compensation," according to the IRS and Treasury.
The relief is limited to returns and statements filed and provided for tax year 2025 and applies only to the extent that the person required to make the return or statement otherwise files and provides a complete and correct return or statement.
"Treasury and IRS are aware that employers and other payors may not currently have the information required to be reported under the OBBB, or the systems or procedures in place to be able to correctly file the additional information" with the IRS, or the Social Security Administration in the case of a Form W-2, and provide it to employees and other payees.
The IRS has announced that Forms W-2 and 1099 for tax year 2025 will not be updated to account for the new tax law.
"Therefore, tax year 2025 will be treated as a transition period for IRS enforcement and administration of the new information reporting requirements for cash tips and qualified overtime compensation under the OBBB."
In late September, the IRS released a draft of a tax form to operationalize several provisions of the new tax law, including limited deductions for qualified tips, overtime pay, car loan interest (for domestically assembled, personally used vehicles) and a new $6,000 deduction for seniors.
Treasury released a preliminary list in early September of 68 eligible job titles divided into eight industry categories, Tax Notes reported.
The notice released Wednesday states that additional guidance for individual taxpayers that addresses how they can claim the deductions for qualified tips and qualified overtime compensation when they file their 2025 returns is forthcoming.
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