In a welcome development for employers that were struggling to determine how to comply with the reporting requirements of the “One Big Beautiful Bill Act” relating to “no tax on tips” and “no tax on overtime,” the IRS announced this week that employers will not face penalties for failing to comply with the Act’s reporting requirements for tax year 2025.

The Act provides above-the-line tax deductions for certain “qualified tips” and “qualified overtime compensation.” To facilitate these deductions, the Act requires employers to include the following information on Form W-2: (a) the total amount of cash tips reported by the employee; (b) the employee’s tipped occupation; and (c) the amount of qualified overtime compensation paid to the employee. The Act left open several questions, including: (a) how to calculate the amount of qualified overtime compensation; and (b) where to report this information on Form W-2.

As to the first question, the Act authorizes the reporting party to “approximate” the amounts designated as qualified overtime compensation pursuant to a “reasonable method” to be specified by the Treasury secretary. While the IRS committed in August to providing guidance “in the coming months” on the “reasonable method” that employers should use to “approximate” this amount, no such guidance has been provided.

As to the second question, the IRS announced that Form W-2 “will remain unchanged” for tax year 2025, leaving employers to wonder where they should report the...

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