IRS Issues Guidance on Tax Treatment of Tips and Overtime Pay

On November 21, 2025, the IRS issued guidance (Guidance for Individual Taxpayers who received Qualified Tips or Qualified Overtime Compensation in 2025) for taxpayers who received Qualified Tips or Qualified Overtime Compensation in 2025 and therefore are eligible for federal income tax deductions for tax year 2025.

There will be no change to standard tax forms this year, which means that employers will not be required to separately account for cash tips or qualified overtime, and will not be subject to federal penalties for not filing correct information returns and not providing correct payee statements to employees.

This guidance also provides information for individual taxpayers on how to satisfy the requirements for the deductions.