IRS’ temporary relief grants more workers eligibility under Trump’s ‘no tax on tips’ law

Core Points - The U.S. Department of the Treasury and the IRS issued guidance allowing more workers to benefit from "no tax on tips" and "no tax on overtime" provisions under President Trump's legislation [1] - The 2025 budget reconciliation bill permits workers to deduct up to $25,000 in tips and $12,500 in overtime from their income, with exemptions for certain specified service trades [2] - Additional guidance is deemed necessary to help determine if an employer's business qualifies as a specified service trade [3] Summary by Sections - Transition Relief: The guidance provides "transition relief" until January 1 of the first calendar year after final rules are issued, recognizing that many small businesses have not previously made such determinations [4] - Penalty Relief: Employers are granted penalty relief for tax year 2025 regarding the provision of correct information on qualified tips and overtime compensation [4] - Tax Forms Update: The IRS has not updated tax forms for 2025 and encourages employers to provide tipped employees with occupation codes and separate accounting of cash tips [5] - Implementation Preparation: Employers should prepare for the implementation of these provisions, despite the easing of the law [6] - Reporting Requirements: Employers are advised to provide employees with reports detailing cash tips, qualifying occupations, and qualified overtime compensation, especially for accurate calculations in tax year 2026 [7]