The IRS recently released Notice 2025-62 granting penalty relief for employers and payors required to report cash tips and overtime compensation on 2025 tax forms. The relief applies to Forms W-2 and 1099 that workers must receive by January 31, 2026. The relief only applies to the 2025 tax year.
Within the One Big Beautiful Bill Act (OBBBA) passed this summer, qualified workers earning tips and overtime pay can deduct up to $25,000 in compensation earned in tips, and $12,500 in overtime earnings. Limits are higher for married taxpayers filing jointly.
Although penalties for noncompliance won’t be assessed during the 2025 transition period, the IRS Notice encourages employers and payors to provide employees and payees with separate accountings of overtime and tip earnings. This information will help individuals claim their new deductions for the 2025 tax year. The information can be included in Box 14 of an employee’s Form W-2 or through an online portal or other written statements.
Employers are advised to consult with their payroll providers or in-house payroll teams to determine how best to capture and report the required information.
For additional information, contact your Bukaty benefits consultant at 913.345.0440.
