If your business has employees or works with independent contractors, you’re required to meet annual federal information reporting obligations. While the One Big Beautiful Bill Act (OBBBA) introduces notable changes to these rules, most won’t apply until the 2026 tax year. Still, understanding what’s coming can help you prepare.
Tips and Overtime Income: What Changes — and What Doesn’t
For tax years 2025 through 2028, the OBBBA creates new federal income tax deductions for employees who earn qualified tips income or qualified overtime income. These deductions don’t exclude the income from taxation altogether.
As a result:
- Federal payroll taxes still apply
- Federal income tax withholding requirements remain unchanged
- State and local income taxes may still apply, depending on jurisdiction
2025 Reporting Remains Unchanged
From an employer and payroll reporting standpoint, the IRS confirmed that no OBBBA-related changes apply for the 2025 tax year. That means existing versions of:
- Form W-2
- Forms 1099
- Form 941
- Other payroll-related forms
remain in effect for 2025.
In November, the IRS released guidance explaining how employees who received tips or overtime pay in 2025 can determine eligibility for the deductions and calculate them — even though employers aren’t required to separately report qualified tips or overtime for that year.
Optional Employer Reporting for 2025
Employers and payroll service providers may voluntarily report qualified tips income for 2025 in Box 14 (“Other”) of Form W-2 or on a separate statement. Employers that pay overtime should also be prepared to address employee questions about whether they qualify as Fair Labor Standards Act (FLSA) employees and may be eligible for the overtime deduction.
Occupations Eligible for the Tips Deduction
In September 2025, the IRS issued proposed regulations identifying occupations eligible for the qualified tips income deduction. Each eligible occupation is assigned a three-digit code that employers will use for future information reporting.
Eligible occupations fall into eight broad 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 2026 Form W-2 Highlights New Reporting Requirements
Also in September 2025, the IRS released a draft version of the 2026 Form W-2. This draft reflects upcoming employer reporting requirements related to:
- Qualified tips income
- Qualified overtime income
- Employer contributions to Trump accounts, a new tax-advantaged savings vehicle for children launching in 2026
New Box 12 Codes
The draft form introduces several new Box 12 codes:
- TA — Employer contributions to Trump accounts
- TP — Total qualified tips income
- TT — Total qualified overtime income
In addition, Box 14b has been added to report the occupation of employees receiving qualified tips income.
Higher Reporting Thresholds Bring Some Relief
While new deductions increase reporting complexity, the OBBBA also provides welcome relief by raising certain information return thresholds — beginning in 2026.
Historically, businesses were required to issue Forms 1099-MISC and 1099-NEC when payments for rents, services, royalties, or other qualifying income reached $600.
Increased 1099 Threshold Starting in 2026
For payments made after 2025, the reporting threshold increases to $2,000, with inflation adjustments beginning in 2027. This change will affect information returns filed in early 2027 to report 2026 payments.
Staying Compliant as Rules Continue to Evolve
Additional IRS guidance is expected, along with finalized versions of 2026 information reporting forms. Businesses should stay informed to ensure compliance as these changes roll out.
If you have questions about how the new rules may affect your payroll or reporting obligations, contact us to stay up to date and avoid compliance issues.