In an update to our prior post, we noted that the Internal Revenue Service (IRS) planned to release an updated Form W-2 for 2026 to address the new reporting requirements under H.R. 1 (The One Big Beautiful Bill Act) for “no tax on tips” and overtime. The IRS has now issued a draft version of an updated W-2, which provides instructions for reporting qualified overtime and tips in Box 12 and identifying qualifying occupations for the tip credit in Box 14b.
Further guidance from the IRS is expected in the coming months. By October 2, 2025, the agency must publish a list of “qualifying occupations” eligible for the “no tax on tips” deduction, along with the corresponding codes to be reported in Box 14b. The Treasury Department this week released a “preliminary list” of occupations that may be entitled to claim the “no tax on tips” deduction. The IRS has also committed to clarifying what constitutes a “reasonable method” for employers to approximate qualified tips and qualified overtime compensation for tax year 2025. In addition, the agency has announced that “transition relief” will be available for employers subject to the new reporting requirements in 2025.
Next Steps for Employers
Employers should begin reviewing the draft form and coordinating with their payroll providers to ensure systems and processes can accommodate the new reporting requirements in advance of the 2026 filing season. In the meantime, they should closely monitor forthcoming IRS guidance to ensure compliance with the new reporting requirements.
HR Works will continue to monitor this topic and provide more information as it becomes available.
