What Employers Need to Know About New IRS Payroll Reporting Guidance for 2025

Timing Clarification (Important)

Tax year 2025 has concluded.
The IRS treated 2025 as a transition year, and while the rules discussed below applied during that year, employers and employees are primarily seeing their impact now, as forms are issued and individual tax returns are filed in 2026.

A High-Level Look at the IRS Guidance

For tax year 2025, the IRS outlined expectations around how employers may identify and approximate qualified tips and qualified overtime compensation. While more detailed rules may continue to develop, several key principles were established:

• The IRS plans to define what constitutes a “reasonable method” for estimating qualified overtime compensation.
• Employers were permitted to optionally provide employees with a separate summary showing total qualified tips and total qualified overtime compensation.
• Determining whether tips or overtime qualified remained the employer’s responsibility, as no IRS-provided tracking mechanism was in place.
• Additional context for these changes stems from the One Big Beautiful Bill Act (OBBBA), with further clarification expected over time.

For those who want to review the source material directly, full details remain available from the Internal Revenue Service.

2025 Was a Transition Year — And That Still Matters

One of the most important takeaways for employers is that the IRS treated tax year 2025 as a transition year.

As part of that transition:

• Employers were not penalized for tax year 2025 for failing to separately track or report qualified tips or qualified overtime compensation.
• This relief applied specifically to reporting penalties under IRS Sections 6721 and 6722.
• The IRS emphasized education, preparation, and system alignment — not enforcement — during this period.

This approach gave employers valuable breathing room to evaluate payroll processes, reporting capabilities, and internal workflows before stricter enforcement expectations may apply in future years.

Practical Considerations for Employers in 2026

Although enhanced reporting was voluntary for tax year 2025, many employers are now reviewing how their payroll processes aligned with the IRS guidance as they support employee filings and internal reporting in 2026.

Practical considerations include:

• Determining whether to provide employees with supplemental written statements, secure portal access, or other documentation to assist with individual tax filing.
• Reviewing existing payroll reports — such as payroll registers — that already contain much of the relevant information.
• Monitoring additional IRS guidance, particularly as it relates to how individual taxpayers claim deductions tied to qualified tips and qualified overtime compensation.

Recommended Next Steps

To stay aligned without overcomplicating payroll operations, Secure HR recommends employers:

• Review the IRS guidance and related notices in full, including the One Big Beautiful Bill Act provisions.
• Coordinate internally with payroll, HR, tax, and legal stakeholders to ensure a consistent and reasonable approach.
• Assess which existing payroll reports support the information reflected in tax year 2025 filings and employee reporting.
• Stay flexible, as additional guidance may further clarify enforcement expectations in future tax years.

How Secure HR Can Help

At Secure HR, our focus is on helping employers navigate regulatory change calmly, clearly, and correctly. If you have questions about how your payroll processes aligned with the 2025 guidance — or what to expect moving forward — our team is here to support you every step of the way.

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