If your business employs workers or pays independent contractors, annual information reporting is unavoidable. The One Big Beautiful Bill Act (OBBBA) introduces new deductions and compliance considerations that directly affect OBBBA employer reporting—but not all changes take effect immediately.
Knowing what applies for the 2025 tax year versus what’s coming in 2026 and beyond is essential for staying compliant and avoiding payroll or reporting issues. Here’s what employers need to know.
OBBBA employer reporting changes: what applies now and what’s coming
Although the OBBBA creates new tax deductions for workers, most employer reporting requirements remain unchanged for 2025. More substantial reporting updates begin with the 2026 tax year, including changes to Form W-2 and higher thresholds for Forms 1099.
Tips and overtime deductions under the OBBBA (2025–2028)
For tax years 2025 through 2028, the OBBBA allows eligible employees to claim federal income tax deductions for:
- Qualified tips income
- Qualified overtime income
These deductions reduce taxable income but do not exclude the income from taxation.
What this means for employers
- Federal payroll taxes still apply
- Federal income tax withholding still applies
- State and local income taxes may still apply in full
In August, the IRS confirmed there are no OBBBA-related changes to 2025 payroll forms or withholding tables, including:
- Form W-2
- Form 941
- Forms 1099
As a result, employers are not required to separately report qualified tips or overtime for 2025 for OBBBA employer reporting purposes.
Voluntary reporting and employee communication in 2025
While not required, employers may voluntarily report qualified tips income for 2025:
- In Box 14 (“Other”) of Form W-2, or
- On a separate written statement
Employers that pay overtime should also be prepared to answer employee questions about:
- Whether the employee qualifies under the Fair Labor Standards Act (FLSA)
- Whether their overtime may be eligible for the federal deduction
The IRS issued guidance in November explaining how employees can determine eligibility and calculate deductions independently when OBBBA employer reporting does not yet include these amounts.
If payroll compliance is handled internally or outsourced, now is a good time to confirm readiness. Our payroll services team helps businesses navigate evolving reporting requirements with confidence.
Eligible occupations for the OBBBA tips deduction
In September 2025, the IRS released proposed regulations identifying occupations eligible for the qualified tips deduction under the OBBBA.
Eligible occupations fall into eight 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
Each eligible occupation is assigned a three-digit code, which will be used for future OBBBA employer reporting on information returns.
Draft 2026 Form W-2 signals major reporting updates
The IRS also released a draft 2026 Form W-2, providing an early look at expanded OBBBA employer reporting requirements that will apply to 2026 wages.
Key changes include:
Box 12 – New codes
- TA: Employer contributions to Trump accounts
- TP: Total qualified tips income
- TT: Total qualified overtime income
New Box 14b
-
Employee occupation for workers receiving qualified tips
These updates will apply to 2026 compensation, reported in early 2027.
Increased 1099 reporting thresholds starting in 2026
In addition to new reporting requirements, the OBBBA also provides relief for businesses that issue Forms 1099.
Current rule (through 2025)
-
Reporting threshold: $600
New rule (effective for payments made after 2025)
- Reporting threshold increases to $2,000
- Indexed for inflation beginning in 2027
This affects:
- Form 1099-MISC (rents, royalties, and other income)
- Form 1099-NEC (payments for services)
The higher threshold applies to 2026 payments, reducing the number of information returns required for OBBBA employer reporting in early 2027.
If contractor reporting is a recurring challenge, our business tax services team can help simplify compliance.
Preparing now for OBBBA employer reporting changes
Although most employer reporting rules remain unchanged for 2025, the One Big Beautiful Bill Act sets the stage for meaningful compliance changes beginning in 2026. Additional IRS guidance and finalized forms are expected.
Taking a proactive approach—reviewing payroll systems, educating employees, and preparing for expanded reporting—will help ensure your business stays compliant as OBBBA employer reporting requirements evolve.
If you have questions or want help preparing for upcoming changes, contact Landmark CPAs to stay ahead of what’s next.