Understanding the OBBB Act and Tip Reporting for 2025

22 Jan 2026 Understanding the OBBB Act and Tip Reporting for 2025

The One Big Beautiful Bill (OBBB) Act, which takes effect for the 2025 tax year, changes how tips are taxed, and many business owners and employees are likely to have questions about how this will affect W-2 reporting.

For 2025, the IRS has announced no changes to the physical Form W-2 related to the “No Tax on Tips” provisions of the OBBB Act. Employers will continue to follow standard W-2 reporting procedures.

Under the OBBB Act, employees may now claim a deduction of up to $25,000 in qualified tips on their personal income tax returns (Form 1040). To help employees claim this new deduction, the IRS encourages—but does not require—employers to provide a separate accounting of qualified tips.

Employers may voluntarily report this information in one of two ways:

• Box 14 (Other) of the Form W-2, showing the total amount of an employee’s cash tips.

• A separate written statement provided to the employee detailing qualified tips.

It’s important to note that mandatory detailed reporting, including a Treasury Tipped Occupation Code, will not be required until the 2026 tax year. For 2025, employees can rely on Box 7 of the W-2, their own tip logs, or voluntary employer statements to calculate their deduction.

This change may raise questions from both employers and employees, so early communication and clarity around reporting can help ensure a smooth tax season.