If your business employs workers or engages independent contractors, you have annual information reporting responsibilities. The One Big Beautiful Bill Act (OBBBA) introduces changes affecting these rules, but these will not take effect until the 2026 tax year.
New Deductions for Tips and Overtime Income
Between 2025 and 2028, the OBBBA establishes new deductions for employees earning qualified tips or overtime income. It’s important to note that these deductions are not income exclusions, meaning federal payroll taxes and income tax withholding still apply. Additionally, qualified tips and overtime may remain fully taxable under state and local income tax laws where applicable.
For employers and payroll management firms, accurately reporting qualified tips and overtime amounts is crucial for eligible workers to claim their federal income tax deductions. In August, the IRS announced that there will be no OBBBA-related changes to federal information returns for individuals, federal payroll tax returns, or income tax withholding tables for the 2025 tax year. Therefore, the 2025 versions of Form W-2, Form 1099, Form 941, and other related payroll forms will remain unchanged.
In November, the IRS provided guidance on how taxpayers who receive tips or overtime in 2025 can assess their eligibility and calculate deductions. Employers are not required to offer information reporting specific to qualified tips or overtime income for that year.
Employers and payroll management firms may voluntarily report qualified tips on Box 14 (“Other”) of Form W-2 or through a separate statement. Those who pay overtime should be ready to address employee inquiries regarding their status as Fair Labor Standards Act employees and potential eligibility for the qualified overtime deduction.
Eligible Occupations for the Tips Deduction
In September 2025, the IRS published proposed regulations listing numerous occupations eligible for the OBBBA deduction for qualified tips. These occupations are assigned a three-digit code for employers to use in reporting.
These occupations fall into eight categories:
- Beverage and Food Service
- Entertainment and Events
- Hospitality and Guest Services
- Home Services
- Personal Services
- Personal Appearance and Wellness
- Recreation and Instruction
- Transportation and Delivery
Draft of the 2026 Form W-2
The IRS also released a draft of the 2026 Form W-2 in September 2025. This draft incorporates new employer reporting requirements for employee deductions related to qualified tips and overtime income, as well as employer contributions to Trump accounts, which will be available in 2026 for tax-advantaged savings for children.
New codes in Box 12 of the draft form include:
- “TA” for employer contributions to Trump accounts
- “TP” for reporting total qualified tips income for an employee
- “TT” for total qualified overtime income for an employee
Box 14b has been added for employers to report the occupation of employees receiving qualified tips income.
Eased Information Return Requirements
While the new deductions for tips and overtime will increase information reporting obligations for businesses, the OBBBA also offers some reporting relief, starting with the 2026 tax year.
Businesses must report annual information returns, such as Form 1099-MISC, for payments that meet or exceed the thresholds for rents, royalties, and other fixed or determinable income. Similarly, businesses that receive services must report payments for services rendered on Form 1099-NEC when they meet or exceed the statutory threshold.
Historically, the reporting threshold for Forms 1099-MISC and 1099-NEC has been $600. However, effective for payments made after 2025, the OBBBA raises this threshold to $2,000, with adjustments for inflation for payments made after 2026. This change will affect information returns filed in early 2027 to report payments made in 2026.
Stay Informed
Further guidance on reporting requirements for qualified tips and overtime income is anticipated, and final versions of the 2026 information reporting forms will be released. Reach out to us to stay updated on developments and ensure your business complies with evolving reporting requirements.