The U.S. Congress made waves this year after enacting the One Big Beautiful Bill Act (OBBB Act), which provides no tax on tips (or overtime) through 2028. The Internal Revenue Service (IRS) subsequently issued guidance on the OBBB Act, and while some questions remain unanswered, the new law only further highlights how important it is for employers to comply with tip laws and regulations.

Quick Hits

• The One Big Beautiful Bill Act (OBBB Act), which was enacted in 2025, eliminated taxes on tips and overtime through 2028, prompting the IRS to issue guidance that underscores the importance of employer compliance with tip laws.
• Employers taking a tip credit under the FLSA must provide specific notice to employees about their direct wage, tip credit amount, and tip retention rules, with failure to comply potentially resulting in invalidated tip credits and liquidated damages.

The Fair Labor Standards Act (FLSA) requires employers that take a tip credit (i.e., pay eligible employees subminimum wage and rely on tips to meet minimum wage) to provide specific tip credit notice to employees. Notice must include:

1. the amount of the direct (or cash) wage the employer is paying a tipped employee, which must be at least $2.13 per hour;
2. the additional amount claimed by the employer as a tip credit, which cannot exceed $5.12 (the difference between the minimum required direct (or cash) wage of $2.13 and the current minimum wage of $7.25);
3. that the tip credit claimed by the employer...

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