Employers get reporting relief on tips, overtime; won’t face penalties for tax year 2025

An IRS notice said employers and other payers will not face penalties for tax year 2025 if they do not provide a separate accounting of amounts reasonably designated as cash tips or the total amount of qualified overtime compensation as required by information-reporting provisions in the sweeping new tax law.

In Notice 2025-62, the IRS also said employers and other payers will not be penalized for not providing the occupation of the person who received the tips.

The penalty relief applies only to tax year 2025, the IRS said, because it will not issue new forms for that year. It also applies only to the extent the person required to make the return or statement otherwise files and provides a complete and correct return or statement.

The new provisions on tips and overtime compensation, which were enacted as part of H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act, are effective for tax years 2025 through 2028.

The IRS said it is providing the relief because employers and other payers may not have the information needed to report under H.R. 1 and also may not have systems in place to file the information with the IRS, to report it to the Social Security Administration, or to provide it to employees and other payees on a Form W-2, Wage and Tax Statement.

Encouraged, not required

Employers and other payers are encouraged to provide employees and payees with the codes that the IRS provided earlier this year for 68 occupations and a separate accounting of cash tips, so the person receiving the tips can claim the deduction for tax year 2025. Likewise, employers and payers are encouraged to provide employees and payees with separate accountings of overtime compensation, so the employee or payee can claim the deduction for qualified overtime compensation for tax year 2025. However, the provision of this information is not required in order to receive the penalty relief provided in the notice.

Employers and payers can make the information available to their employees and payees through an online portal, additional written statements provided to the employees or payees, other secure methods, or, in the case of qualified overtime compensation, in box 14 of the employee’s Form W-2.

AICPA advocacy

In October, the AICPA asked the IRS and Treasury to provide guidance on the reporting and substantiation requirements for deductions of qualified tips and overtime pay allowed under H.R. 1.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.