On November 5, the IRS issued Notice 2025-62 providing penalty relief to employers and other payors required to report cash tips and qualified overtime compensation under the One Big Beautiful Bill Act (OBBBA). The relief applies only to tax year 2025. Under the Notice, employers and other payors will not be penalized for failing to file correct information returns or provide correct payee statements to employees and other payees.
Background
The OBBBA established new tax deductions for qualified tips and overtime compensation. As a result of these new deductions, employers and other payors are required to file information returns and provide statements to taxpayers. In the case of qualified tips, the statement must show the cash tips received during the year and the occupation of the tip recipient. In the case of overtime compensation, the statement must show the total amount of qualified overtime compensation paid during the year.
Penalty Relief for Tax Year 2025
The IRS is aware that employers and other payors may not currently have the information required to be reported under the OBBBA or the systems in place to correctly file information returns and provide statements to employees and other payees. In addition, the IRS previously announced that Forms W-2 and 1099 for tax year 2025 will not be updated to account for the new OBBBA reporting requirements. Therefore, the IRS is treating tax year 2025 as a transition period and providing penalty relief.
Under Notice 2025-62, the IRS will not impose penalties on employers and other payors for failing to provide a separate accounting of cash tips or the occupation of the tip recipient. Employers and other payors also will not face penalties for failing to separately provide the amount of qualified overtime compensation. The penalty relief applies only to the extent that the person required to file the return or provide the statement otherwise files and furnishes a complete and correct return or statement.
Although not required to receive penalty relief, the IRS encourages employers and other payors to provide employees and payees with occupation codes and separate accountings of cash tips so that the employee or payee can claim the deduction for qualified tips for tax year 2025. Likewise, employers and other payors are encouraged to provide employees and payees with separate accountings of overtime compensation to allow them to claim the deduction for qualified overtime compensation for tax year 2025. This information can be made available through an online portal, written statement, or other secure method. Qualified overtime compensation also can be reported in Box 14 of the employee’s Form W-2.
Additional guidance for individual taxpayers on how to claim deductions for qualified tips and overtime compensation when filing returns for tax year 2025 is expected.
If you have questions on the penalty relief provided in Notice 2025-62 or other changes in the OBBBA, contact your Dean Dorton or other professional advisor.
