Under the One Big Beautiful Bill Act (OBBBA), new deductions for qualified tips and qualified overtime compensation are applicable to tax years beginning after December 31, 2024. These provisions require employers and payors to separately report amounts designated as cash tips and the occupation of the recipient, as well as qualifying overtime compensation.
For 2025, no penalties will be assessed under Internal Revenue Code Sections 6721 (for failure to file correct information returns) or 6722 (for failure to furnish correct payee statements if payors or employers fail to separately report this new information), provided all other information on the statement is complete and accurate. This relief will apply to information returns and Forms W-2 furnished to employees. This transition relief only applies for tax year 2025, and full compliance will be required beginning in 2026 when revised forms are available.
To assist taxpayers in claiming the new deductions, employers and payors are strongly encouraged to provide employees and payees with the necessary information, including occupation codes and separate accountings of cash tips and overtime compensation for them to claim the proper deduction. This information can be made available through an online portal, additional written statements, other secure methods or qualifying overtime (Box 14 of Form W-2).
At Creative Planning Business Services, we partner with our clients to make sure they understand reporting requirements and keep them informed of the latest updates. If you aren’t yet a client, please schedule a call to learn how we can assist you with following the latest requirements.
