IRS Issues New Guidance on Claiming Tip and Overtime Deductions for 2025

On November 21, the IRS issued Notice 2025-69, offering new guidance to help eligible employees calculate tax deductions for tips and overtime compensation for the 2025 tax year. These deductions stem from Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA), and are designed to simplify the process for workers who may not receive a detailed breakdown of these earnings from their employers.

For 2025, the IRS will not update Form W-2 to include separate reporting for cash tips or qualified overtime. Instead, this year is designated as a transition period, meaning employers are not required to track or report these amounts separately. Even so, the IRS encourages employers to support employees by communicating relevant information when possible.

Some employers may choose to use Box 14 (“Other”) on Form W-2 to share helpful details, such as an employee’s occupation or the amount of qualified tips or overtime compensation. Others may provide the information on a separate written statement. This is optional but may make it easier for employees to calculate their deductions accurately.

The notice spans 30 pages and includes definitions, examples, and clarifications to help employees determine what qualifies as deductible tips or overtime. With income tax forms and instructions currently being updated for the upcoming filing season, employees should expect additional IRS resources to support these new deduction rules.

If you’re looking for more in-depth guidance on payroll regulations, PayrollOrg’s Payroll Source Plus is an excellent resource for staying up to date.