The Internal Revenue Service recently announced time-limited relief for employers who are now required to report overtime pay and tips separately on W-2 and 1099 forms. While the “One Big Beautiful Bill Act” (OBBBA) established new overtime compensation and tips deductions for 2025 through 2028, the IRS understands that many organizations (and the agency itself) are not ready to separately account for those payments through such information returns.

OBBBA’s “No Tax on Overtime” and “No Tax on Tips” deductions were among the most highly touted elements of the tax legislation when it was signed into law in July. Employees, whether they itemize on their taxes or not, can—now through 2028—deduct up to $12,500 ($25,000 for joint filers) in overtime pay. Similarly, eligible workers may deduct up to $25,000 in qualified tips. In both cases, the deductions phase out for taxpayers with incomes of more than $150,000 ($300,000 for joint filers).

In order for workers to take advantage of those deductions, employers must account for overtime and tip amounts separately on W-2 and 1099 forms. Indeed, they could be subject to penalties for failing to report that information to workers and the government. Nevertheless, realizing that organizations may not have that information available or the systems in place to report it this year—and recognizing the IRS itself will not be updating W-2 and 1099 forms for 2025—the agency is treating this year as a “transition period for IRS enforcement” of these new OBBBA requirements.

Notably, while not requiring this information, the IRS is still encouraging employers and other payors to provide an accounting of eligible tips and overtime pay to workers through a written statement, online portal, or another secure method. In the case of overtime compensation, the IRS says employers may use Box 14 of the employee’s W-2.

For more insights into tax law changes under OBBBA, as well as other legislative and regulatory developments, please check out ECFA’s recent “Federal Tax, Regulatory, and Capitol Hill Update for Churches and Ministries” webinar featuring the expertise of Mike Batts and Kaylyn Varnum of Batts Morrison Wales & Lee (BMWL).