The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department to provide more flexibility through guidance on a safe harbor for taxpayers who wish to claim tax deductions for overtime and tip income under the One Big Beautiful Bill Act.
In a letter last week, the AICPA requested alternative methods of reporting and use of alternative documentation to report such income, as well as a safe harbor that allows individuals and tax preparers to rely on the alternative information provided to determine the deductions.
The OBBBA added sections 224 and 225 to the Tax Code, temporarily allowing a deduction for individual taxpayers for qualified tips and overtime compensation through 2028. To claim the deductions, separate reporting of qualified tips and qualified overtime compensation needs to be entered on information returns, including Form W-2 and Form 1099-NEC, Nonemployee Compensation. The new law amended the applicable Chapter 61 rules to require information reporting of qualified overtime compensation and qualified tips by employers and businesses to align with the requirement in sections 224 and 225 that qualified tips and qualified overtime compensation be included on information returns.
But the 2025 version of these forms, which is the current revision, doesn’t permit this kind of reporting, the AICPA pointed out. In addition, the IRS recently announced there would be “no changes to individual information returns or withholding tables for 2025 under the One Big Beautiful Bill Act,” including no revisions to Form W-2, Form 1099-NEC, Form 1099-MISC, Miscellaneous Information, and Form 1099-K, Payment Card and Third Party Network Transactions.
“Because the 2025 Form W-2 and Form 1099 do not provide designated fields to report the amount of qualified tips and qualified overtime compensation, or the occupation codes, employers and payors are currently unsure of how to satisfy information reporting as is required under section 224 and section 225 in order for individuals to be eligible for these deductions,” wrote AICPA Tax Executive Committee chair Cheri Freeh. “Additionally, tax return preparers and individuals preparing their own tax returns are unsure which type of alternative documentation they can rely on to support the deductions for qualified tips and qualified overtime compensation.”
To address this, the AICPA suggested the Treasury and the IRS should provide guidance including a safe harbor for businesses for the 2025 tax year allowing for alternative methods of reporting and use of alternative documentation to report under section 224(a) and section 225(a).
The AICPA also wants the IRS and the Treasury to include a safe harbor allowing individuals and tax preparers to rely on the alternative information provided to determine the deductions including:
Box 7 of Form W-2;Information provided by the employer or payor in any format (such as pay stubs or letters); and,Individual taxpayer representations of occupations, tip sheets, hours worked logs and other documentation.
The IRS and the Treasury should also include examples in the guidance indicating the type of documentation that will satisfy the information reporting safe harbors, the AICPA suggested.
“Employers and payors are unsure of how to satisfy information reporting required under section 224 and section 225 in order for individuals to be eligible for these deductions,” said Scott Klein, senior manager of tax policy and advocacy at the AICPA, in a statement Tuesday. “Additionally, tax return preparers and individuals preparing their own tax returns are unsure which type of alternative documentation they can rely on to support the deductions for qualified tips and qualified overtime compensation. The AICPA urges the IRS to accept our recommendations and provide this much needed clarification.”
