If your business has employees or works with independent contractors, annual information reporting is already a key compliance responsibility. Beginning with the 2026 tax year, those obligations will expand — and in some cases ease — under the One Big Beautiful Bill Act (OBBBA).
While these changes do not affect 2025 reporting, employers and payroll providers should start preparing now.
Qualified tips and overtime income: what changes and when
For tax years 2025 through 2028, the OBBBA introduces new federal income tax deductions for employees who receive:
Qualified tips income
Qualified overtime income
A few important clarifications:
These amounts are not excluded from income
Federal payroll taxes and federal income tax withholding still apply
State and local tax treatment may differ where applicable
2025 reporting: no required changes (but proactive support matters)
The IRS has confirmed that 2025 payroll and information reporting forms remain unchanged, including:
Form W-2
Forms 1099
Form 941
Federal withholding tables
Employers are not required to separately report qualified tips or qualified overtime income for the 2025 tax year. However, employers may voluntarily report qualified tips in Box 14 (“Other”) of Form W-2 or provide the information in a separate statement to employees.
Even though this reporting is not required for 2025, Stelios Payroll has taken proactive steps to support our clients and their employees. Our systems are configured to make this additional information available on 2025 Forms W-2, helping employees more easily determine their eligibility for new OBBBA deductions and prepare accurate tax filings.
This forward-looking approach helps reduce employee confusion, minimizes follow-up questions, and positions businesses for a smoother transition to the mandatory reporting requirements that begin in 2026.
Eligible occupations for the tips deduction
In September 2025, the IRS released proposed regulations identifying eligible occupations for the qualified tips deduction. These roles are grouped into categories including:
Beverage and food service
Hospitality and guest services
Entertainment and events
Personal services and wellness
Transportation and delivery
Each eligible occupation is assigned a three-digit code, which will be used for employer reporting starting in 2026.
What’s new on the draft 2026 Form W-2
The IRS has released a draft version of the 2026 Form W-2, reflecting new reporting requirements. Key additions include:
Box 12 — new codes
TA: Employer contributions to Trump accounts
TP: Total qualified tips income
TT: Total qualified overtime income
New Box 14b
Reports the employee’s occupation when qualified tips income is paid
These changes mean payroll systems and internal processes will likely need updates before 2026.
Relief for 1099 reporting begins in 2026
The OBBBA also provides welcome relief for businesses that issue Forms 1099:
The reporting threshold for Forms 1099-MISC and 1099-NEC increases from $600 to $2,000
Applies to payments made after 2025
Inflation adjustments begin after 2026
Affects information returns filed in early 2027 (to report 2026 payments)
What businesses should do now
Additional IRS guidance and finalized 2026 forms are expected. In the meantime, businesses should:
Review payroll and contractor payment processes
Coordinate with payroll providers and advisors
Plan system updates ahead of 2026
Staying proactive now can prevent compliance issues later.
📞 Contact Berndt CPA LLC to stay informed on evolving reporting requirements and ensure your business is prepared for the changes ahead.
