At a Glance
IRS Notice 2025-62 provides temporary penalty relief for tax year 2025 under the One Big Beautiful Bill Act (OBBBA). The notice applies to employers and payors adjusting to new information reporting rules related to the Act’s “No Tax on Tips and Overtime” provisions. The IRS has designated 2025 as a transition year while updated reporting systems and forms are developed for 2026.
Contents
- 2025 as a Transition Year
- Relief for Reporting on Tips
- Relief for Reporting on Overtime
- Encouraged Preparations
- Looking Ahead
2025 as a Transition Year
The IRS has issued Notice 2025-62, granting penalty relief for 2025 filings connected to the One Big Beautiful Bill Act (OBBBA). The Act introduced new deductions for qualified tips and qualified overtime compensation, effective for tax years beginning after December 31, 2024.
To support these deductions, the OBBBA expanded reporting requirements for employers, payors, and third-party settlement organizations. They must now include additional data on information returns and payee statements, such as separate amounts for cash tips, qualified overtime, and the occupation of recipients.
However, most reporting systems are not yet designed to handle these changes. Recognizing this, the IRS has designated 2025 as a transition year. During this period, penalties under sections 6721 and 6722 will not apply if the new data is omitted, provided all other information on required filings remains complete and accurate.
Relief for Reporting on Tips
A key component of the OBBBA’s new reporting rules involves tips. Employers and payors are required to identify cash tips separately and note the occupation of the recipient. Since Forms W-2 and 1099 will not be updated in time for 2025, the IRS will not impose penalties for the absence of this information during the transition year.
This relief applies to information filed under sections 6041, 6041A, 6050W, and 6051 of the Internal Revenue Code. Importantly, the notice clarifies that other required information—such as total payments and taxpayer identification details—must still be reported accurately for the relief to apply.
Relief for Reporting on Overtime
The same transition approach applies to the OBBBA’s overtime provisions. Employers and payors are now required to identify and report qualified overtime compensation separately on information returns and payee statements. Because these reporting systems also require time to adjust, the IRS will waive penalties for missing overtime detail on 2025 forms, including Forms W-2 and 1099.
This relief, which applies to reporting under sections 6041 and 6051, mirrors the approach for tips—allowing filers to comply with existing requirements while preparing for the additional data fields that will be required in future years.
Encouraged Preparations
While the penalty relief provides short-term flexibility, the IRS encourages businesses to begin adapting their processes now. Employers and payors are advised to start collecting and sharing data that will eventually be required, including occupation information for tipped workers and separate reporting of cash tips and overtime pay.
Notice 2025-62 suggests that this information may be shared through supplemental statements, secure online portals, or other methods. Doing so will help employees and payees understand what information will be needed to claim the new deductions once full reporting takes effect.
Looking Ahead
Additional IRS guidance is expected to explain how individuals can claim the new deductions for qualified tips and overtime on their 2025 returns. The current penalty relief applies only to payments made during the 2025 tax year. The transition period provides time for businesses, payroll providers, and third-party settlement organizations to update their systems before enforcement begins in 2026. For assistance with implementing OBBBA-related reporting changes, contact a qualified tax advisor.
John Hadwen is a Principal at ARB. He specializes in providing individuals and businesses with comprehensive
tax compliance and consulting services related to closely-held business, manufacturing, construction & real estate, and professional services firm taxation. Prior to joining ARB, John was a Tax Principal at a large, regional CPA firm.
