Overview
- New guidance explains how individuals can calculate deductions for qualified tips and FLSA overtime premiums when employers do not separately report the amounts, with step-by-step examples for common scenarios.
- Employers receive penalty relief for tax year 2025 under Notice 2025-62 for not separately reporting cash tips, tipped occupation codes, or qualified overtime, provided returns are otherwise complete and correct.
- Forms W-2 and 1099 remain unchanged for 2025, though the IRS encourages employers to share tip and overtime accountings directly with employees, including optional entries in Box 14 for overtime.
- The IRS released a draft 2026 Form W-2 adding a Box 14b occupation code and Box 12 codes TP (qualified tips) and TT (qualified overtime), signaling full reporting requirements starting in 2026.
- Eligibility parameters remain in flux as proposed rules list nearly 70 tipped occupations across eight categories and enforcement of the specified service trade or business exclusion is postponed during the transition; deductions are capped at $25,000 for tips and $12,500 or $25,000 for overtime, subject to income phase-outs and without changing FICA treatment.