On November 21, the Internal Revenue Service and Department of the Treasury issued new guidance for workers on how to determine and report their overtime compensation and tips on their 2025 tax returns in order to claim the new tax deductions included in the One Big Beautiful Bill Act (OBBBA).
Background
The OBBBA created tax deductions for overtime compensation and tips for certain eligible workers, but the law requires employers and other payors to file information returns with the IRS or the Social Security Administration and to furnish statements to taxpayers showing the total amount of qualified overtime compensation and tips they were paid during the year. The IRS and Treasury Department, however, have not yet updated employers’ tax forms.
As was previously reported, the IRS and Treasury Department issued guidance for employers on this issue earlier in November. The employer guidance offered penalty relief for these reporting requirements, clarifying that employers will not be held liable for failing to file correct information returns or furnish correct payee statements to their eligible workers, as required by the OBBBA. This relief, however, only applies to tax year 2025. Tax forms for 2026 will provide more guidance to employers on how to comply with the reporting requirements under the OBBBA.
New Guidance
As the agencies’ press release explains, the new guidance “clarifies for workers how to determine the amount of their deduction without receiving a separate accounting from their employer for cash tips or qualified overtime on information returns.” Instead, the guidance explains, workers will be able to report their overtime compensation and tips directly from their W-2s. According to the press release, the IRS is currently updating income tax forms and instructions to assist taxpayers in filing and claiming the deduction this tax season.
The guidance provides insights into how the IRS will determine qualified overtime pay and what will likely be required to report for tax year 2026. CUPA-HR’s government relations team is analyzing this guidance and will keep members apprised of future guidance on the issue as it becomes available.