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IRS Provides Tax Year 2025 Penalty Relief on Reporting Tips and Overtime
November 11, 2025
At a Glance
- Department of Treasury and Internal Revenue Service (IRS) Notice 2025-62 provides employer guidance on penalty relief for tax year 2025 regarding the reporting requirements for cash tips and overtime compensation under the One Big Beautiful Bill (OB3).
- Employers will not face any penalties if they don’t report separate accounting of tip amounts or for workers who earn overtime.
Summary
On November 5, 2025, the Department of Treasury and Internal Revenue Service (IRS) issued Notice 2025-62, which provides guidance to employers on tax year 2025 penalty relief for reporting requirements outlined in the One Big Beautiful Bill (OB3). This temporary relief is part of the transition period for tax year 2025.
According to the notice:
- Employers will not be subject to penalties for tax year 2025 if they don’t separately report:
- Cash tips or the occupation of employees receiving these tips
- Overtime compensation
- Employers are encouraged, but not required, to provide tipped employees with information about their tip or overtime earnings to help them take the relevant deductions for 2025.
- Forms W-2 and 1099 for tax year 2025 will not be updated to reflect the OB3-related changes.
Next Steps
Paylocity is actively monitoring IRS and federal guidance on the OB3 and will share updates as they become available.
Thank you for choosing Paylocity as your Payroll Tax and HCM partner. This information is provided as a courtesy, may change, and is not intended as legal or tax guidance. Employers with questions or concerns outside the scope of a Payroll Service Provider are encouraged to seek the advice of a qualified CPA, Tax Attorney, or Advisor.
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