Overview
- Employers will not be penalized in 2025 for failing to separately report cash tips, tip-recipient occupations, or total qualified overtime, provided returns are otherwise complete and correct.
- Forms W-2 and 1099 will not be updated for tax year 2025, with changes coming for 2026; the IRS encourages voluntary sharing of occupation codes and separate tip and overtime details, including overtime in Box 14.
- The One Big Beautiful Bill created temporary deductions for qualified tips and the premium portion of overtime from 2025 through 2028, with the tip deduction capped at $25,000 and phased out above $150,000/$300,000 MAGI.
- Proposed regulations define qualified tips as voluntary cash or cash-equivalent payments and exclude service charges and automatic gratuities, limit eligibility to listed tipped occupations, and bar certain specified service trades or businesses.
- Treasury and the IRS have not yet issued proposed regulations for the overtime deduction, leaving employers and payroll providers managing open compliance questions on documentation, tip pooling, and state-tax alignment.