Full notice (PDF): Guidance for Individual Taxpayers who received Qualified Tips or Qualified Overtime Compensation in 2025
⚠️Note: This information is for informational purposes only and does not constitute formal tax, legal, or compliance advice. Always consult with qualified tax advisors, legal counsel, and your organization’s internal teams for guidance specific to your situation. Additional regulations may apply. For the most accurate and up-to-date information, refer to official government resources and regulatory agencies.
IRS Notice 2025-69 provides transitional guidance for the new above-the-line deductions available starting in tax year 2025:
These deductions are for individuals; however, employers play an important role in documenting tip and overtime amounts so employees can substantiate their claims.
For 2025 only, the IRS grants administrative relief to employers. Although employers are not required to separately report qualified tips or qualified overtime compensation, the IRS highly encourages them to do so. Employers may voluntarily provide this information – and the IRS outlines specific acceptable methods.
W-2 is the preferred place to provide tip and overtime information in 2025.
Although Notice 2025-69 gives employers transition relief and does not require separate reporting of qualified tips or qualified overtime for 2025 W-2s, employers may voluntarily provide this information.
The IRS clearly states employers are allowed to furnish tip and overtime information in:
This is the recommended and cleanest options for employees and tax preparers. It ensures workers have the documentation they need to claim the new deductions.
Employers may also provide a year-end summary letter or digital statement with tip and overtime amounts.
Even though it’s voluntary for 2025, providing Box 14 information helps employees claim valuable tax deductions and prepares payroll systems for 2026, when reporting boxing will be added.
Notice 2025-69 gives employers four primary methods to furnish tips and overtime data for 2025. Providing this information is strongly beneficial for employees and improves payroll readiness for 2026, when specific reporting boxes will be added. The methods include:
Employers may include:
Box 14 is the preferred and cleanest method for both payroll tax departments and tax preparers.
Employers may furnish a:
The statement may include:
Notice 2025-69 also explains how compensatory time (“comp time”) fits into the new deduction:
Normally, specified service trades or businesses (SSTBs) are excluded from the qualified tips deduction. However, for 2025 only, Notice 2025-69 provides relief.
If the occupation has customarily and regularly received tips before December 31, 2024, the employee is eligible, even if working in an SSTB. This broadens eligibility significantly for the first year of implementation.
Even though reporting is optional for 2025, the IRS’s guidance strongly suggests that employers:
This helps employees claim deductions of up to $25,000 (tips) $12,500-$25,000 (overtime), and prepares payroll for mandatory separate reporting beginning 2026.