Updated Guidance for Employers Regarding 2025 Reporting Obligations for Qualified Tips and Qualified Overtime Compensation Under the One Big Beautiful Bill Act
As previously summarized, President Trump signed the federal One Big Beautiful Bill Act (OBBBA) into law in July 2025. Among other provisions, the OBBBA creates new payroll tax deductions for qualified tips and qualified overtime compensation for tax years 2025 through 2028. More information is summarized in a prior legal update from October 17, 2025.
For tax year 2026, when both withholding and reporting will be required for these qualified payments, the Internal Revenue Service (IRS) will issue new tax forms, including new Forms W-4, W-2, and 941. Draft versions of the forms, instructions, and publications can be found here. However, these forms will not be available for tax year 2025. The IRS confirmed early on that it would provide transitional relief for tax year 2025, noting that employers would be able to use any reasonable estimation method to determine the amount of qualified tips and qualified overtime for 2025 by IRS-approved methods.
On November 5, 2025, the IRS and US Treasury Department issued updated guidance, Notice 2025-62. More information is located here.
Pursuant to the updated guidance, and for tax year 2025 only, employers will not be penalized for:
Failing to provide a separate accounting of qualified tips or the occupation of the person receiving such tips; or
Failing to provide a separate accounting of qualified overtime.
These transition provisions only apply “to the extent that the person required to make the return or statement otherwise files and furnishes a complete and correct return or statement.” A complete return or statement must include the total amount of the payments required to be reported under the applicable Internal Revenue Code section. In other words, employers must include qualified tips and qualified overtime compensation in the total amounts reported for wages or aggregate payments. The relief from penalties is limited to the obligation to provide a separate accounting of tips and overtime compensation and the obligation to identify the appropriate occupation for qualified tips.
While not required to provide the separate accounting for tax year 2025, the IRS and US Treasury Department nevertheless encourage employers to provide employees with information regarding qualified tip and qualified overtime compensation amounts so employees know what to claim as part of the deductions. Employers can make the information available through an online portal, additional written statements provided to employees, other secure methods.
Employers are encouraged to consult with tax professionals regarding the appropriate way to provide this information to employees. Although the IRS and US Treasury Department note that employers may include overtime compensation in Box 14 of an employee’s Form W-2, preexisting penalty provisions may apply if the amount reported is inaccurate. As a result, before deciding whether to report this information on any tax forms for tax year 2025, employers should consult tax professionals regarding the potential implications of doing so.
This legal update and any use of its information does not create an attorney-client relationship. Nothing contained on this website should be considered legal advice for any specific employer or employment situation. Consult legal counsel before taking any action as a result of information contained herein.
