The IRS is offering employers a break for 2025, easing penalties as businesses work to comply with new reporting rules for tips and overtime pay under the One, Big, Beautiful Bill Act.
OBBBA Changes to Tips and Overtime
The 'No tax on tips' provision allows employees in tipped occupations to deduct up to $25,000 of qualified tips annually. The 'No tax on overtime' provides a similar benefit for overtime compensation up to $12,500 annually.
Penalty Relief for 2025
For 2025 only, the IRS won't impose penalties for failing to separately report qualified tips, qualified overtime, or occupation codes — but only if employers file accurate and timely returns otherwise.
Preparing for 2026 Compliance
- Assess payroll systems for needed updates
- Review IRS occupation codes and match to your workforce
- Develop tracking processes for qualifying tips and overtime
- Train payroll and HR staff on definitions and reporting standards
