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For tax year 2025, employers and other payors received limited IRS penalty relief for failing to report certain new tip and qualified-overtime details separately. They still had to file otherwise complete and correct information returns and payee statements; the relief did not waive ordinary filing or payroll-reporting duties. The IRS also left the 2025 Forms W-2, 1099-NEC, 1099-MISC and 1099-K unchanged.
What the IRS relief covers
IRS Notice 2025-62 provides transition relief from penalties under Internal Revenue Code sections 6721 and 6722 for specified failures involving tax-year 2025 information returns and payee statements. The relief applies to failures to separately report amounts reasonably designated as cash tips or a tip recipient’s occupation, and failures to separately report total qualified overtime compensation. The IRS announcement and Notice 2025-62 describe the transition period.
The condition matters: the filer must otherwise file and furnish a complete and correct return or statement. This is specified penalty relief for the new separate details—not permission to skip a W-2 or 1099, omit ordinary payroll reporting, or file an inaccurate return.
Do employers have to report tips and overtime separately on 2025 forms?
No. The IRS did not revise the 2025 Forms W-2, 1099-NEC, 1099-MISC or 1099-K to add these separate reporting fields. Employers and payors were not required to separately account for cash tips or qualified overtime on those forms or their written statements for that year. The IRS’s Payroll professionals tax center provides its information for payroll professionals and clients.
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What employers could give workers
The IRS encouraged employers and payors to provide separate information that could help workers determine whether they qualify for the new deductions. This was encouraged, not a condition for receiving the Notice 2025-62 penalty relief.
- For tipped workers, an employer could share the worker’s occupation code and a separate accounting of cash tips.
- For workers receiving qualified overtime, an employer could provide a separate accounting of the amount. The IRS identified options such as an online portal, a separate written statement, another secure method, or Form W-2 Box 14.
What workers can do if their W-2 does not show qualified overtime
A missing separate overtime figure on a 2025 W-2 does not by itself mean a worker cannot determine whether they qualify for the deduction. IRS Notice 2025-69 explains how individuals can determine qualified tips and overtime for 2025 even when the amounts are not separately shown on the forms. If an employer has not supplied a separate statement, workers should follow the applicable filing guidance, including the Schedule 1-A instructions, and retain reliable personal records. The IRS also provides guidance on the overtime deduction and tip recordkeeping and reporting.
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“No tax” means an individual income-tax deduction, not a blanket exemption
The employer relief concerns information-reporting penalties. “No tax on tips” and “no tax on overtime” refer to individual federal income-tax deductions enacted for tax years 2025 through 2028; they do not make all tips or overtime exempt from every tax.
Qualified overtime deduction
The deduction generally covers only compensation above a worker’s regular rate that is required under the Fair Labor Standards Act—usually the extra half of time-and-a-half pay. Overtime generally remains subject to Social Security and Medicare taxes. For individuals, the maximum deduction is $12,500; for joint filers, it is $25,000. It phases out above modified adjusted gross income of $150,000 for individuals or $300,000 for joint filers. These limits and thresholds are individual deduction rules, not employer reporting thresholds, according to the IRS’s March 5, 2026 guidance.
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The maximum annual deduction for qualified tips is $25,000 and phases out above modified adjusted gross income of $150,000 for individuals or $300,000 for joint filers, according to IRS Notice 2025-69. Not every payment described as a tip qualifies: IRS guidance distinguishes voluntary customer tips from mandatory service charges.
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