Some Leeway ... For Now

When the One, Big, Beautiful Bill was passed, one of the biggest headlines involved not paying taxes on tips and overtime. This is reasonable since so many people do earn pay in tips or overtime that it was bound to catch their attention. At the same time, you don’t want to then tell them the bad news that it may be a little complicated for the first year since things weren’t set up to record this information in a way to easily report it on a tax return. This could especially weigh heavy on employers who did not properly delineate all prior pay for the year.

But now, let’s celebrate some really good news – This is OK!!!!!

Yes, this was a potential problem that was looming, but the IRS released a notice last week that it is granting one year of penalty relief if this reporting isn’t perfect for 2025.

From the Notice:

Specifically, employers and other payors 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. In addition, employers and other payors will also not face penalties for failing to separately provide the total amount of qualified overtime compensation. The relief is limited to returns and statements filed and provided for tax year 2025 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. 

Note that this only applies to the one specific year, so once we turn the calendar into 2026 (and can you believe how quickly that is coming up?) you will be expected to have things fully in order and correct.

Since 2026 is coming up so quickly, this is one of those things that you are going to want to get a hold on soon. There may not always be a lot you can do to get ready for taxes before the calendar turns, but when there is, you can get that jump that can make everything feel better when we do hit the next year. Employees should see that everything is being properly reported and employers should ensure they have a way to properly reflect this in paychecks.

Warmly,

Josh Bousquet
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