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    Labor & Employment Law Daily Wrap Up, IRS NEWS—Guidance provides penalty relief in relation to reporting of cash tips, overtime compensation, (Nov 6, 2025)

    By Patricia K. Ruiz, J.D.

    Relief under this guidance is limited to returns and statements filed and provided for tax year 2025.

    The Treasury Department and the Internal Revenue Service (IRS) will provide penalty relief to employers and other payors for tax year 2025 in relatio ...

    By Patricia K. Ruiz, J.D.

    Relief under this guidance is limited to returns and statements filed and provided for tax year 2025.

    The Treasury Department and the Internal Revenue Service (IRS) will provide penalty relief to employers and other payors for tax year 2025 in relation to reporting requirements for cash tips and qualified overtime compensation under the One, Big, Beautiful Bill (OBBB), according to IRS Notice 2025-62. The guidance encourages employers and payors to provide employees and payees with the information necessary to claim the deductions for qualified tips and overtime compensation.

    OBBB reporting requirements. Certain employees and self-employed individuals may deduct qualified tips or qualified overtime compensation that are reported on a Form W-2, Form 1099, or reported directly by the individual on Form 4137. Employers and other payors are required to file information returns with the IRS—or SSA in the case of Form W-2—and provide statements to taxpayers showing certain cash tips and overtime compensation received during the year, as well as the occupation of the recipient.

    Relief. The guidance states that employers will not face penalties for failing to provide a separate accounting of any amounts reasonably designated as cash tips or the occupation of the person receiving the tips. Further, employers and other payors will not face penalties for failing to separately provide the total amount of qualified overtime compensation. Relief under this guidance is limited to returns and statements filed and provided for tax year 2025. It applies only to the extent that the person required to make the return or statement otherwise files and provides a complete and correct return or statement.

    The guidance encourages employers and other payors to provide employees and payees in tipped occupations with the occupation codes and separate accountings of cash tips and overtime compensation, to allow the employee or payee to claim the deduction. The guidance suggests making the information available to their employees and payees through an online portal, additional written statements provided to the employees or payees, and other secure methods. In the case of qualified overtime compensation, the information can be provided in Box 14 of the employee’s Form W-2.

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