If your business employs workers or pays independent contractors, annual information reporting is a critical compliance responsibility. The One Big Beautiful Bill Act (OBBBA) introduces notable changes to these rules — but most of them won’t affect reporting until the 2026 tax year.
Understanding what applies now and what’s coming later can help your business prepare and avoid surprises.
Tips and Overtime Income: What Applies in 2025
For tax years 2025 through 2028, the OBBBA establishes new above-the-line deductions for employees who earn qualified tips income or qualified overtime income.
It’s important to note that these deductions do not exclude income from taxation. As a result:
- Federal payroll taxes still apply
- Federal income tax withholding rules remain unchanged
- State and local income taxes may still apply, depending on jurisdiction
Employer Reporting for 2025
From an employer and payroll administration perspective, the challenge lies in how qualified tips and overtime are reported so employees can properly claim these deductions.
In August 2025, the IRS confirmed that for the 2025 tax year, there will be no changes to:
- Individual federal information returns
- Payroll tax returns
- Income tax withholding tables
Accordingly, the 2025 versions of Form W-2, Forms 1099, Form 941, and other payroll-related forms remain unchanged.
Later, in November 2025, the IRS issued guidance explaining how employees who received tips or overtime in 2025 can determine eligibility and calculate deductions — despite employers not being required to separately report qualified tips or overtime amounts for that year.
Optional Reporting and Employee Questions
Although not required, employers and payroll providers may voluntarily report qualified tips for 2025 in:
- Box 14 (“Other”) of Form W-2, or
- A separate written statement
Employers that pay overtime should also be prepared to address employee questions regarding whether they qualify as Fair Labor Standards Act (FLSA) employees, which affects eligibility for the qualified overtime deduction.
Occupations Eligible for the Tips Deduction
In September 2025, the IRS released proposed regulations identifying dozens of occupations eligible for the qualified tips income deduction. Each eligible occupation is assigned a three-digit code that will be used 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 of the 2026 Form W-2, which reflects the upcoming employer reporting obligations under the OBBBA.
The draft includes changes to support reporting of:
- Qualified tips income
- Qualified overtime income
- Employer contributions to Trump accounts — a new tax-advantaged savings vehicle for children launching in 2026
New Codes Added to Box 12
The draft 2026 Form W-2 introduces the following Box 12 codes:
- “TA” — Employer contributions to Trump accounts
- “TP” — Total qualified tips income
- “TT” — Total qualified overtime income
In addition, a new Box 14b will be used to report the occupation of employees receiving qualified tips income.
Information Return Thresholds Increase in 2026
While the OBBBA adds new reporting requirements, it also provides meaningful relief for businesses by raising certain information return thresholds — effective beginning with the 2026 tax year.
Higher 1099 Reporting Thresholds
Historically, businesses have been required to issue:
- Form 1099-MISC for certain payments such as rents and royalties
- Form 1099-NEC for payments to independent contractors
The long-standing reporting threshold for both forms has been $600.
Under the OBBBA:
- The threshold increases to $2,000 for payments made after 2025
- Inflation adjustments will apply for payments made after 2026
This change affects information returns filed in early 2027 for qualifying 2026 payments.
Stay Informed and Prepare Ahead
Additional IRS guidance is expected, and final versions of the 2026 information reporting forms will be released in the future. Staying informed now can help ensure your business is ready to comply with evolving requirements.
Contact us if you have questions about how these changes may affect your payroll processes or information reporting obligations.
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