The American Institute of CPAs (AICPA) is asking the IRS for more clarity for employers on the 2025 reporting and substantiation requirements related to the new temporary tax deductions for qualified tips and qualified overtime compensation.
The One Big Beautiful Bill Act (OBBBA), signed by President Donald Trump in July, temporarily allows a deduction for individual taxpayers for qualified tips and qualified overtime compensation. To claim the deductions, separate employer reporting of qualified tips and qualified overtime compensation is required to be included on information returns, including Form W-2 and Form 1099-NEC, Nonemployee Compensation.
However, the current 2025 version of these forms does not allow for this reporting, AICPA said in a recent letter sent to the IRS and the U.S. Treasury Department. Moreover, the IRS recently announced that there will be no changes to individual information returns or withholding tables for 2025 under the One Big Beautiful Bill Act, including no revisions to Form W-2, Form 1099-NEC, Form 1099-MISC, Miscellaneous Information, and Form 1099-K, Payment Card and Third Party Network Transactions.
“Because the 2025 Form W-2 and Form 1099 do not provide designated fields to report the amount of qualified tips and qualified overtime compensation, or the occupation codes, employers and payors are currently unsure of how to satisfy information reporting as is required under section 224 and section 225 in order for individuals to be eligible for these deductions,” the letter stated.
“Additionally, tax return preparers and individuals preparing their own tax returns are unsure which type of alternative documentation they can rely on to support the deductions for qualified tips and qualified overtime compensation.”
To address this, the AICPA’s letter recommends that Treasury and IRS:
- Provide guidance including a safe harbor for businesses for the 2025 tax year allowing for alternative methods of reporting and use of alternative documentation to report under section 224(a) and section 225(a).
- Include a safe harbor that permits individuals and tax return preparers to rely on the alternative information provided to determine the deductions including:
- Box 7 of Form W-2
- Information provided by the employer or payor in pay stubs or letters
- Individual taxpayer representations of occupations, tip sheets, logs of hours worked, and other documentation.
