The IRS has announced penalty relief for employers for the 2025 tax year regarding new reporting requirements under the One Big Beautiful Bill Act (OBBBA). This relief applies to the reporting of qualified overtime compensation and cash tips.
The OBBBA introduces new tax deductions for employees, which requires employers to implement systems to separately track overtime paid under the Fair Labor Standards Act (FLSA) and qualified cash tips. Recognizing that employers may not have the necessary systems in place, the IRS has designated tax year 2025 as a transition period.
Under the OBBBA, eligible employees can deduct up to $12,500 (or $25,000 for joint filers) based on the premium portion of their FLSA overtime earnings. A deduction of up to $25,000 (or $50,000 for joint filers) is available for qualified cash tips. Both deductions begin to phase out for individuals with a modified adjusted gross income exceeding $150,000 ($300,000 for joint filers).
While penalties are waived for 2025, enforcement is expected for the 2026 tax year. HR professionals should use this transition period to prepare.
Penalty relief is just one recent news development in workplace compliance. Here's a look at other recent compliance news and trends.
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Andrea Lucas, newly appointed U.S. Equal Employment Opportunity Commission (EEOC) chair, could reshape civil rights enforcement, prioritizing religious accommodation and scrutiny of inclusion and diversity programs.
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Understand the patchwork of state reimbursement laws for remote work expenses. Find out when pro-rata payments might be allowed and learn policy takeaways.
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