Takeaways
For tax years 2025 -2028, the One Big Beautiful Bill Act (OBBBA) allows employees to take an above-the-line tax deduction on qualified overtime pay and qualified tips.
On November 21, 2025, the Internal Revenue Service (IRS) released IRS Notice 2025-69, which explains how individual taxpayers can calculate and claim these deductions for the tax year 2025, even if their employer does not provide any separate documentation identifying which portions of overtime or tip income may qualify for the deduction.
IRS and Treasury Guidance
- IR-2025-82 (IRS announces no changes to individual information returns or withholding tables for 2025 under the One, Big, Beautiful Bill Act)
- IR-2025-92 (Treasury, IRS issues guidance listing occupations where workers customarily and regularly receive tips under the One, Big, Beautiful Bill)
- IR-2025-110 (Treasury, IRS provide penalty relief for tax year 2025 for information reporting on tips and overtime under the One, Big, Beautiful Bill)
- IRS Notice 2025-62 (Relief from Certain Penalties Related to Information Reporting Required in Connection with No Tax on Tips and Overtime)
- IR-2025-114 (Treasury, IRS provide guidance for individuals who received tips or overtime during tax year 2025)
- IRS Notice 2025-69 (Guidance for Individual Taxpayers who received Qualified Tips or Qualified Overtime Compensation in 2025)
Jackson Lewis Resources:
- Federal OBBBA Round-Up: What Employers Need to Know Now – Jackson Lewis
- OBBBA’s Tips + Overtime Tax Break: Reclassification Considerations, Reporting Requirements, Industry Impact + More – Jackson Lewis
- IRS 2025 Penalty Relief: A Break for Employers under OBBBA’s Tax Reporting for Tips and Overtime
Background
Employer reporting obligations: The OBBBA requires employers to report on Form W-2 both
- the portion of an employee’s pay that is qualified overtime compensation, and
- the portion constituting qualified tips along with the employee’s qualifying tip-earning occupation.
However, under IRS Notice 2025-62, the IRS announced that it generally will not be enforcing these separate reporting obligations for the 2025 tax year. Formal W-2 reporting changes will begin in 2026.
Article
IRS Notice 2025-69 provides examples and calculation methods for determining deductible amounts of qualified tips and qualified overtime when the employer does not provide a separate accounting. Furthermore, the Notice grants transition relief from the restriction limiting the tip deductions to only those tips received in a “specified service trade or business.”
Even though separate reporting is optional in 2025 and the Form W-2 has not yet been revised for the new tax reporting obligations, the IRS still encourages employers to provide this information voluntarily, such as by posting on an online portal, providing additional written statements, or using Box 14 of Form W-2 to show qualified overtime pay. Employers that do not provide such additional information should anticipate employee inquiries during the 2025 tax filing season and consider proactive communication and support.
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