On November 21, the IRS issued guidance to help eligible employees claim the tax deductions for tips and for overtime compensation for tax year 2025. The deductions are part of Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA) [IR-2025-114, 11-21-25].
Notice 2025-69 clarifies for employees how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns such as Form W-2, Wage and Tax Statement.
The IRS is not updating Form W-2 for tax year 2025. However, the IRS said it is in the process of updating income tax forms and instructions for taxpayers to use this upcoming filing season.
Employers are not required to separately account for cash tips or qualified overtime compensation on Forms W-2 or issue written statements to individuals for 2025. The IRS has deemed tax year 2025 as a “transition period,” but it does encourage employers to help inform employees of qualified tips and qualified overtime.
For tips, the IRS said some employers may choose to provide information on an employee’s occupation or other relevant information to employees using Box 14, Other, of Form W-2. For overtime, some employers may choose to report the amount of qualified overtime compensation to employees using Box 14 of Form W-2 or on a separate statement.
The 30-page Notice 2025-69 provides examples and details on qualified tips and qualified overtime.
To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!
Jyme Mariani, Esq., is Director of Payroll Information Resources for PayrollOrg.