The IRS has issued new guidance clarifying how the “no tax on overtime and tips” provision of the One Big Beautiful Bill Act (OBBBA) will work in its first year of implementation. It has been confirmed that, for 2025 only, employers won’t have to separate which portions of overtime pay qualify for the tax break and which do not.

Starting in 2026, employers will be legally required to list qualified overtime compensation as its own line item, and taxpayers will be able to use that information when filing their 2026 returns in 2027. There is no business requirement to provide this information for 2025, and it will be up to the employee to calculate it on their own for 2025 dating back to January 1.

IRS Notice 2025‑69 also confirms that only the extra half‑time premium in overtime pay qualifies for the exemption — not the full time‑and‑a‑half rate. Tips will continue to be reported in Box 7, making that portion of the exemption easier to track. To learn more and view the full IRS Notice 2025-69, click here. If you have questions or concerns, please contact your KL advisor.