The IRS continues to release additional guidance clarifying the new tips and overtime deductions enacted under the One Big Beautiful Bill Act (OBBBA), including temporary penalty relief for employers and instructions for eligible individual taxpayers. Helpful overtime deduction FAQs were the latest announcement from the IRS, adding another layer of guidance for employers and workers navigating the new OBBBA‑related tax provisions.
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IRS Grants Penalty Relief For 2025 Reporting
On Nov. 5, 2025, the IRS issued Notice 2025-62, providing limited penalty relief for employers and other payors for the 2025 tax year. Under the notice, employers will not be subject to penalties for failing to report certain information that employees may need to prepare their 2025 individual income tax returns.
Specifically, penalty relief applies to the failure to report:
- The amount of cash tips received during the year.
- The occupation of the individual receiving eligible tips.
- The total amount of qualified overtime compensation.
The relief applies only to tax year 2025 and only if the employer or payor otherwise files a complete and accurate return or information statement. The IRS emphasized that employers are still encouraged to provide employees with the information necessary to claim the new deductions where possible.
Guidance Issued For Eligible Individual Taxpayers
The IRS also released Notice 2025-69 on Nov. 21, 2025, offering guidance to individual taxpayers eligible for the new tips and overtime deductions. The notice explains how workers can calculate their deductions for tax year 2025 even if they do not receive the relevant information from their employers. It also includes several illustrative examples for each deduction.
Although Forms W‑2 and 1099 will not be revised for the 2025 filing season, the IRS noted that the updated 2026 Form W‑2 offers insight into future reporting requirements. Updated instructions for the 2025 Form 1040 have also been released, providing step‑by‑step instructions for reporting the new deductions.
Read Also: What The OBBBA Means For Business Tax Planning
IRS Publishes Overtime FAQ Resource
On Jan. 23, 2026, the agency also issued a new set of frequently asked questions addressing the deduction for qualified overtime compensation. Announced in Information Release IR‑2026‑10, the FAQs are intended to assist employers and employees by clarifying common points of confusion and linking to relevant IRS notices and Fair Labor Standards Act resources.
Next Steps For Taxpayers & Employers
Taxpayers and employers seeking additional support on the new OBBBA‑related deductions are encouraged to consult with GBQ’s employment tax services team or their GBQ tax advisor.
By Sara Goldhardt, CPA, State & Local Tax
Interested in more insights from GBQ? Check out these resources:
State & Local Taxes: A 2026 Outlook
IRS Recommends Electronic Payments
Navigating Individual Tax Changes Under The One Big Beautiful Bill Act (OBBBA)
