On Friday, November 21, 2025, the IRS released Notice 2025-69 (the “Notice”), providing guidance to individual taxpayers for the federal income tax deductions for qualified tips or qualified overtime compensation for tax year 2025. The notice follows the issuance of Proposed Regulations (REG-110032-25), which clarified eligibility and further defined “qualified tips,” and Notice 2025-62, which made employer reporting of 2025 qualified tips and overtime optional by granting penalty relief.
The notice addresses a number of concerns for individuals who may or may not receive amounts from their employer(s) or payor(s) by providing certain relief for the 2025 transition period and additional guidance on the determination and reporting of qualified tips and qualified overtime.
Guidance on qualified tips includes:
- How employees may determine the amount of qualified tips they received in 2025 by permitting reliance on tips reported in box 7 of Form W-2, Forms 4070 Employee’s Report of Tips to Employer (or similar substitutes) for 2025, or amounts voluntarily provided by employers in box 14 of Form W-2 or on a separate statement. In addition, employees may also include amounts listed on line 4 of the 2025 Form 4137.
- How non-employees may determine the amount of qualified tips they received in 2025 by using earnings statements, various documentary evidence, and other information provided by the payor that may assist.
- Transition relief for IRS enforcement of the qualified tip exclusion for specified service trades or businesses (SSTB), where the IRS will disregard the SSTB exclusion for employees that are otherwise in eligible occupations until January 1 if the first calendar year following the issuance of applicable final regulations.
Guidance on qualified overtime compensation includes:
- How employees may determine:
- if they are an eligible employee under the Fair Labor Standards Act (FLSA), and
- the amount of qualified overtime compensation they received in 2025 through the use of seven reasonable methods.
- Clarification that qualified overtime compensation does not include amounts exceeding the additional one-half times portion required by the FLSA.
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