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12/15/25 IRS Releases Guidance on Overtime and Tips Reporting for 2025
By Barran Liebman Law [6],
As the federal government shutdown ended, the IRS returned to work and released Notice 2025-69 providing guidance for employees on overtime and tip reporting. Such guidance may result in additional questions to employers on overtime and tip reporting for the 2025 tax year.
What Does the “One Big Beautiful Bill” Allow for Employees?
The One Big Beautiful Bill Act (the “Act”) provides an above-the-line tax deduction for qualified tips and qualified overtime compensation received in the 2025 thru 2028 tax years. This specific qualifying compensation is subject to phaseouts and limitations, but these are for the most part a taxpayer/employee concern and not for employers for reporting purposes.
What Does the Act Require from Employers?
The Act requires employers to separately report on Forms W-2 (or applicable Forms 1099) the specific amount of qualified tips (including specific occupation) and qualified overtime. This is a change from prior aggregation reporting of all compensation.
What is Qualified?
This is a source of many questions for employers on how to determine what is “qualified” for employees who may believe that any tip or overtime compensation is not subject to taxation. As defined by the Act, a qualified tip is voluntary remuneration paid to an individual in an occupation that traditionally receives tips. Qualified overtime is overtime compensation generally required by Section 7 of the Fair Labor Standards Act in excess of the regular rate of pay. Whether collectively bargained compensation is allowable to be excluded under this standard is an often asked and difficult to answer question based on the wording of the Act.
What Relief did Notice 2025-62 Provide to Employers?
Earlier guidance released as Notice 2025-62 provided employers with an exemption from penalties for reporting requirements in 2025 and encouraged employers to voluntarily provide employees with proper reporting for 2025 in any manner possible. Notice 2025-62 hinted at further guidance to come, which was recently provided as Notice 2025-69.
How does Notice 2025-69 Treat Tips?
Under the Act, only those tips earned by individuals working in a Specified Service or Trade Business (“SSTB”) are eligible for special tax treatment. However, Notice 2025-69 temporarily expanded the applicability of the deduction. Under the guidance of Notice 2025-69, employees working in occupations that traditionally receives tips may be eligible even if they did not work for a SSTB in 2025.
How Does Notice 2025-69 Impact Guidance Regarding the Overtime Exemption?
Notice 2025-69 provides that in the event the employer does not provide specific reporting of qualified overtime compensation then employees are allowed to use all possible means to determine their own qualified overtime amount. Notice 2025-69 additionally specifically directs employees to contact their employer for a determination on whether the individual is subject to Section 7 of the Fair Labor Standards Act.
What are the Next Steps for Employers?
While the ultimate tax paying requirement is the employee’s responsibility, the guidance makes clear that the IRS is relying upon employers to provide information to employees as to whether they are in an occupation subject to tip exemption, whether they work in a SSTB, and whether the employee’s compensation is subject to Section 7 of the FLSA. As a general concept, any employee receiving tip and overtime compensation will have an unfounded expectation that amounts will be clearly reported as exempt on their 2025 Form W-2. We expect additional guidance in the 2026 tax year, but in the meantime, it is important for employers to have a plan for how to address questions on employee exemption and employer reporting for the 2025 tax year.
Please contact Jeff Robertson [7] at 503-276-2140 or [email protected] [8], Iris Tilley [9] at 503-276-2155 or [email protected] [10], or your regular attorney at Barran Liebman if you have any questions.