AICPA Requests IRS Guidance on New Tip and Overtime Deductions

The American Institute of Certified Public Accountants (AICPA) recently asked the IRS and U.S. Treasury Department to provide clear guidance on how to report and document the new tip and overtime pay deductions created under the One Big Beautiful Bill Act.

These new deductions apply to tax years 2025 through 2028, offering potential savings for both employers and employees. But there’s a catch—right now, the IRS has said it won’t update some key tax forms for 2025, leaving many people unsure about how to report these amounts correctly.

Currently, Form W-2 (for employees) and Form 1099-NEC (for contractors) don’t include special boxes for reporting qualified tips or overtime pay, and they don’t yet include the new job codes the IRS plans to introduce in future years. This lack of clarity is creating some understandable confusion for businesses, taxpayers, and preparers alike.

According to Scott Klein, a tax expert at the AICPA, even seasoned tax professionals are waiting on the IRS to explain what kind of proof will be needed to claim these new deductions.

To help reduce confusion, the AICPA recommended that the IRS and Treasury:

  • Provide clear 2025 reporting rules that allow other methods for documenting tips and overtime pay.
  • Accept supporting documents such as W-2 box 7 information, pay stubs, employer letters, or personal records like tip sheets or work logs.
  • Offer examples of acceptable proof so taxpayers know exactly what documentation will qualify.

What Small Business Owners Can Do Now

If you’re a small business owner, now’s the time to prepare. Start thinking about how you’ll track your team’s tips and overtime pay throughout the year. Having a reliable system, like detailed pay stubs, tip logs, or hour records, will help ensure you’re ready when it’s time to file. Staying organized now will make it easier for you and your employees to maximize these new deductions and avoid any reporting headaches down the road.

At Abacus!, we’re keeping a close eye on these updates and will continue to share guidance as the IRS releases more information. If you have questions about how these changes might affect your business or your 2025 tax plan, our team is here to help you stay ahead.