IRS Details 2025 Workarounds for New Tips and Overtime Deductions

Overview

• IRS Notice 2025-69, issued Nov. 21, outlines acceptable records workers can use for 2025, including W-2 Box 7 social security tips, Forms 4070, optional Box 14 entries, Form 4137, pay stubs, POS reports, third‑party platform histories, and contemporaneous logs.
• The guidance provides arithmetic shortcuts to isolate the FLSA overtime premium, such as using the separately listed premium if shown, taking one‑third of total time‑and‑a‑half amounts, one‑quarter of double‑time totals, or a reasonable method based on half the regular rate times overtime hours.
• Notice 2025-62 grants penalty relief for employers and other payers that do not separately report qualified tips and overtime on 2025 forms, while signaling revised W‑2/1099 reporting and enforcement beginning in 2026.
• Eligibility is limited to tips from occupations that customarily and regularly receive tips and to the FLSA‑required half‑time overtime premium, so state‑mandated or contractual amounts beyond FLSA generally do not qualify.
• The temporary deductions run from 2025 to 2028 with caps and phaseouts, including up to $25,000 for tips and up to $12,500 for single filers or $25,000 for joint filers on overtime, phasing out above $150,000 MAGI ($300,000 for joint filers), and 2025 includes transitional relief for certain SSTB tip earners.