Updates For Overtime And Tip Reporting Obligations For 2025

As we wrote on July 14, 2025, the One Big Beautiful Bill Act (OBBA) contains a provision providing a tax deduction for employees' overtime income in 2025 through 2028.

Originally, the data regarding such overtime income was to be reported on a W-2 form. However, as employers are preparing their 2025 W-2 forms (to be issued in January 2026), the IRS has provided some relief. Employers now may — but are not required to — include the qualifying overtime in the employee's W-2 form. If an employer chooses not to include the deductible overtime on the W-2 form, the employer still has obligations and must provide the employee with detail on any overtime that is potentially deductible in some form. This detail can be in a memo to the employee explaining what overtime the employee earned that is eligible for the deduction. Starting next year, employers will have to report overtime on a W-2 form, as the IRS plans to update the form for employers to include such information.