Businesses that employ workers or engage independent contractors have ongoing federal information reporting responsibilities. While the One Big Beautiful Bill Act (OBBBA) introduces meaningful changes to these requirements, most of the new reporting rules will not take effect until the 2026 tax year. Understanding what applies now—and what’s coming next—is essential for proper planning and compliance.
Below is a clear breakdown of the upcoming reporting changes, how they affect employers and payroll providers, and what businesses should prepare for as the rules evolve.
New Deductions for Tips and Overtime Income
For tax years 2025 through 2028, the OBBBA introduces new deductions for employees who earn qualified tips income or qualified overtime income. These deductions are intended to reduce federal income tax liability for eligible workers—but they are not exclusions from income.
This distinction is important. Even though employees may be entitled to federal income tax deductions, the following still apply:
- Federal payroll taxes remain in effect
- Federal income tax withholding rules continue to apply
- State and local income taxes may still fully tax this income
As a result, employers and payroll processors face new challenges around identifying, tracking, and reporting this income so employees can properly claim their deductions.
No Federal Reporting Changes for the 2025 Tax Year
In August 2025, the IRS confirmed that there would be no OBBBA-related changes to federal payroll and information reporting forms for the 2025 tax year. This means that:
- Form W-2 remains unchanged for 2025
- Forms 1099 (including 1099-NEC and 1099-MISC) remain unchanged
- Form 941 and payroll tax filings are unchanged
- Federal income tax withholding tables are unchanged
Employers are not required to separately report qualified tips or overtime income for 2025.
Later in November 2025, the IRS issued guidance for employees explaining how they can determine eligibility and calculate their deductions for qualified tips or overtime income—even though employers are not required to provide specific reporting for that year.
Voluntary Reporting Options for Employers in 2025
Although not required, employers and payroll service providers may voluntarily assist employees by reporting qualified tips income for 2025 in Box 14 (“Other”) of Form W-2 or by providing a separate written statement.
Employers that pay overtime should also be prepared to answer employee questions regarding eligibility. In particular, employees must generally qualify as Fair Labor Standards Act (FLSA) employees to claim the overtime deduction.
IRS Identifies Eligible Occupations for Tips Deduction
In September 2025, the IRS released proposed regulations identifying dozens of occupations eligible for the qualified tips income deduction. Each eligible occupation has been assigned a three-digit occupation code that will be used for future information reporting.
The eligible occupations fall into eight primary 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
These classifications will play a key role in employer reporting beginning with the 2026 tax year.
Draft 2026 Form W-2 Reflects New Reporting Requirements
Also in September 2025, the IRS released a draft version of the 2026 Form W-2, which incorporates several new reporting elements required under the OBBBA.
The draft form includes new Box 12 codes for:
- TA – Employer contributions to Trump accounts
- TP – Total qualified tips income
- TT – Total qualified overtime income
In addition, a new Box 14b has been added to report the occupation of employees who receive qualified tips income.
Trump accounts—another OBBBA initiative—will become available in 2026 and are designed to provide tax-advantaged savings opportunities for children. Employer contributions to these accounts will now require formal reporting.
Higher 1099 Reporting Thresholds Starting in 2026
While the OBBBA adds new reporting requirements related to tips and overtime, it also provides meaningful relief for businesses by easing certain information return thresholds.
Historically, businesses have been required to file Forms 1099-MISC and 1099-NEC for payments of $600 or more made during the year.
Effective for payments made after December 31, 2025, the OBBBA increases this reporting threshold to $2,000. The threshold will also be adjusted for inflation for payments made after 2026.
This change affects:
- Rent payments
- Royalties
- Service payments to independent contractors
- Other reportable fixed or determinable income
The increased threshold will first apply to 2026 payments, which are reported on information returns filed in early 2027.
What Businesses Should Do Now
Although most changes do not take effect until 2026, proactive planning is essential. Employers should:
- Review payroll and reporting systems for upcoming changes
- Monitor IRS guidance on qualified tips and overtime income
- Prepare for new W-2 reporting codes and occupation disclosures
- Update internal policies and employee communications
Additional IRS guidance is expected, along with final versions of 2026 reporting forms. Staying informed will help prevent compliance issues and unnecessary penalties.
Stay Compliant with Expert Guidance from Botwinick & Company
The information reporting landscape is changing, and the OBBBA introduces both new obligations and new opportunities for businesses. Navigating these changes requires careful attention to IRS guidance, payroll procedures, and tax planning strategies.
Botwinick & Company helps businesses stay compliant, informed, and prepared as tax laws evolve. If you have questions about upcoming reporting requirements or how these changes may impact your business, contact our team today for trusted guidance.
