The US Department of the Treasury and the Internal Revenue Service (IRS) have released new guidance that eases reporting obligations for businesses regarding cash tips and overtime compensation for the 2025 tax year.
This move is in response to challenges introduced by new disclosure requirements under the One, Big, Beautiful Bill (OBBB).
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Notice 2025-62 authorities stated that employers and other payors will not be penalised in 2025 for failing to separately itemise cash tips or disclose the occupation of tip recipients.
Similarly, there will be no penalties for not splitting out qualified overtime compensation on returns or statements during this period.
The dispensation is available only if other aspects of the filings are accurate and complete.
Officials explained that many businesses do not currently have access to the detailed information required by the OBBB or the systems necessary to report it correctly.
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By GlobalDataThe IRS also confirmed that Forms W-2 and 1099 for tax year 2025 will not reflect changes relating to the new requirements.
As a result, tax year 2025 is being treated as a transition period, with enforcement of these reporting rules deferred.
While not mandatory for relief, authorities are encouraging employers to provide employees with details such as occupation codes, breakdowns of cash tips, and itemised overtime compensation.
This information could help employees claim relevant deductions when they file tax returns.
Employers may share these details through secure electronic methods, written statements, or in certain boxes on Form W-2.
The OBBB brought in new rules allowing specified workers and self-employed individuals to deduct qualified tips—as long as they are properly reported—on their federal taxes.
It also created similar provisions for overtime compensation. Employers are required by law to report these amounts to the IRS or Social Security Administration and provide corresponding statements to employees.
The temporary penalty relief outlined in Notice 2025-62 will apply only to filings made for tax year 2025 as employers adapt their systems to meet the new federal standards.
