IRS Guidance Regarding One Big Beautiful Bill Act
The IRS recently announced guidance regarding penalty relief for employers for the 2025 tax year under the One Big Beautiful Bill Act (OBBBA). As a result, employers “will not face penalties for failing to provide a separate accounting of any amounts reasonably designated as cash tips or the occupation of the person receiving such tips.” Additionally, employers will not face penalties for failing to separately provide the total amount of qualified overtime pay.
The relief is limited to returns and statements filed for the 2025 tax year and “applies only to the extent that the person required to make the return or statement otherwise files and provides a complete and correct return or statement.” However, the W-2 and 1099 forms will not be updated to reflect the OBBB-related changes.
Employers should also be aware that the IRS released new reporting requirements under the OBBB. Eligible employees may deduct qualified tips that are reported on a W-2 or 1099 Form, or reported directly by the individual on Form 4137. “Employers and other payors must file information returns with the IRS, or SSA in the case of Form W-2, and provide statements to taxpayers showing certain cash tips received during the year and the occupation of the tip recipient.” “Qualified tips” are tips received by an individual in an occupation that “customarily and regularly received tips” as of December 31, 2024. Tips eligible for deduction are limited to $25,000 for individuals or $50,000 if filing jointly, absent exceptions.
The 2025 penalty relief is temporary, and employers should expect enforcement for tax year 2026. If you have questions specific to your company, please contact the Fox Smith, LLC Employment Team at 314-588-7000, mgentzen@foxsmithlaw.com or hspiewak@foxsmithlaw.com.