The IRS and the U.S. Department of the Treasury have announced new guidance offering temporary penalty relief to employers and payors for tax year 2025 under the One, Big, Beautiful Bill (OBBB).

If your business pays employees tips or overtime, this update matters to you — here’s what it means in plain language.

🕒 2025 Is a Transition Year

For tax year 2025, the IRS will not penalize employers or payors who are unable to meet the new information reporting requirements for cash tips or qualified overtime compensation under the OBBB.

In simple terms, if your business doesn’t yet have systems in place to track and report this additional information separately — you won’t face penalties this year, as long as your other payroll reporting (like total wages) is accurate and submitted correctly.

This relief comes from IRS Notice 2025-62, which officially designates 2025 as a transition period while businesses adjust to these new requirements.

💡 What the New Rules Involve

The One, Big, Beautiful Bill (OBBB) introduced new reporting standards for:

Cash Tips: Employers must report cash tips separately and include the occupation of the tipped employee.

Overtime Pay: Employers must report the total amount of qualified overtime compensation separately.

While these changes aim to make tax filing clearer for employees and self-employed individuals, the IRS recognizes that most payroll systems aren’t ready for these updates yet — which is why the 2025 tax year will serve as a transition phase.

⚖️ What’s Covered by Penalty Relief

For 2025 only, employers and payors will not be penalized for:

Failing to separately report the total amount of cash tips.

Failing to include the occupation of the tipped employee.

Failing to separately report total qualified overtime compensation.

This relief only applies if all other parts of your tax forms — such as W-2s or 1099s — are otherwise accurate and complete.

👥 Encouraged (But Not Required) Actions

Even though separate reporting isn’t mandatory this year, the IRS is encouraging employers to:

Provide employees with a breakdown of cash tips and overtime pay.

Make this information accessible, such as through:

An online employee portal

A written year-end statement

Box 14 on Form W-2

Doing this helps employees properly claim deductions for qualified tips and qualified overtime compensation on their 2025 tax returns.

📘 What’s Coming Next

The IRS has stated that additional guidance will be issued for individual taxpayers, explaining how to claim these new deductions when filing 2025 tax returns.

You can follow updates directly on the IRS website under the One, Big, Beautiful Bill provisions section — or let JP Tax LLC handle it for you.

💼 What Employers Should Do Now

✅ Review your payroll system — see if it can track cash tips and overtime separately.
✅ Keep accurate records for all 2025 payments.
✅ Watch for IRS updates later this year with final instructions.
✅ Consult your accounting team (that’s us!) to make sure you stay compliant while taking advantage of all available deductions.

🏢 Need Help Staying Compliant?

At JP Tax LLC, we stay on top of every new IRS update so you don’t have to. Whether you’re managing payroll, handling tips, or preparing for new reporting requirements, our team can help you stay accurate — and penalty-free.

📍 Visit us at 261 S. Hamilton Rd, Whitehall, OH
📞 614-330-9002 | ✉️ jpabon@jptaxllc.com

💬 We speak English and Spanish — ¡Hablamos español!