Publication

11 December 2025

IRS Issues Guidance on “No Tax on Qualified Tips and Qualified Overtime” – What Employers Should Know

The One Big Beautiful Bill Act (OBBBA) includes deductions for qualified tips and overtime – often called “no tax on tips” and “no tax on overtime.” They are designed to reduce taxable wages for eligible workers. The IRS will issue new W-2 forms beginning tax year 2026 for employer reporting of qualified tips and overtime, but not for tax year 2025. This resulted in confusion about how employers should report qualified tips and overtime for tax year 2025. The law created more confusion because the OBBBA passed mid-2025, yet the law requires tracking and reporting for the entire year.  The IRS has issued new guidance under Notice 2025-69 that changes what employers need to do to comply with reporting obligations.

What’s New?

  •  No Penalty for Not Reporting in 2025: Employers are not required to provide reports of Qualified Overtime for 2025. Mandatory reporting begins for tax year 2026.
  • Although not required to separately report Qualified Tips and Qualified Overtime on 2025 W-2s, the IRS encouraged employers to provide separate accountings for Qualified Tips and Qualified Overtime to assist employees in determining the amount of their deductions. Entering the data in W-2 Box 14 is one option.
  • Employee Calculation Guidance: The IRS also provided instructions for employees to calculate their deductions if their employers do not separately state their Qualified Tips or Qualified Overtime.

Employers Should Decide Now:

Whether to:

  • Report voluntarily for 2025 (e.g., via Box 14 on W-2 or a year-end statement), or
  • Wait until 2026, when reporting becomes mandatory

Pros of Reporting for 2025:

  • Reduces employee confusion and questions during tax season.
  • Positions employer as proactive and supportive.

Cons of Reporting for 2025:

  • Without clear IRS definitions and system updates, incorrect reporting could lead to employee disputes and amended returns.
  • May require manual calculations for qualifying Qualified Overtime premiums.

Action Steps:

  1. Convene HR/payroll leadership to decide reporting approach.
  2. If reporting, coordinate with payroll vendors immediately.
  3. Prepare employee communications (FAQs, year-end notices).
  4. Begin planning for 2026 compliance. Systems must capture Qualified Tips and Qualified Overtime separately.

Bottom Line

The IRS has given employers breathing room for 2025, but decisions made now will impact employee relations and compliance readiness for 2026. HR teams should act promptly.

If you have questions, please contact the authors or a member of Miller Johnson’s Employment and Labor practice group.