The IRS recently released Notice 2025-69, providing guidance for individuals on how to claim the new federal income tax deductions for qualified tips and qualified overtime compensation for tax year 2025 under the One Big Beautiful Bill Act (OBBBA).
Although the new law requires employers to separately report qualified tips and overtime pay on Form W-2 or 1099 in future years, employers are not required to do this for 2025 and will not face penalties for failing to separately report these amounts this year.
What employers should know & consider doing:
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Educate your team: Make employees aware of the new deductions available for qualified tips and overtime so they can claim them correctly.
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Prepare for employee questions: Employees may ask how to determine qualified tips or overtime pay if not separately reported. Be ready to help or point them toward payroll records or paystubs.
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Voluntary reporting helps: Consider providing voluntary information β such as a separate statement, Box 14 on W-2s, or internal portal reporting β showing cash tips and overtime compensation details. This can make it easier for employees to calculate their deductions.
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Understand FLSA eligibility: Be prepared to answer questions about whether employees are covered by the Fair Labor Standards Act (FLSA), as this affects qualified overtime eligibility.
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Look ahead to 2026: Forms will be updated for the 2026 tax year to include separate reporting of qualified tips and overtime compensation β start planning now with payroll and HR teams.
Staying proactive now can help your workforce take full advantage of the new tax benefits and avoid confusion at tax-filing time. πΌπ‘
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Amanda Bernard CMA,CPA,CFE
Director/Manager
Douglassville PA
United States
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