Overview

• Employers must separately track and report FLSA-qualified overtime premiums and cash tips on employees’ 2025 W-2s under a Treasury-approved reasonable method
• Exact line-item reporting of qualified tips and overtime premiums becomes mandatory on W-2s starting in 2026 once IRS rules are finalized
• The Treasury Department must issue an official list of traditionally tipped occupations by October 2, 2025, to define eligibility for the tip deduction
• Colorado’s H.B. 1296 continues to tax overtime at the state level despite the federal above-the-line deduction, creating compliance challenges for multi-state employers
• Employers will still withhold federal income, Social Security, and Medicare taxes on all overtime compensation and tips despite the new deductions