Washington, D.C. (October 21, 2025) – In a letter submitted to the U.S. Department of the Treasury and the Internal Revenue Service (IRS), the American Institute of CPAs (AICPA) requested guidance related to the 2025 reporting and substantiation requirements regarding the deductions for qualified tips and qualified overtime compensation.
The One Big Beautiful Bill Act, or H.R. 1 (Act), created Internal Revenue Code (IRC) section 224 and section 225, which temporarily allows a deduction for individual taxpayers for qualified tips and qualified overtime compensation. To claim the deductions, separate reporting of qualified tips and qualified overtime compensation is required to be included on information returns, including Form W-2 and Form 1099-NEC, Nonemployee Compensation. The Act amended relevant Chapter 61 rulesto require information reporting of qualified overtime compensation and qualified tips by employers and businesses to align with the requirement in section 224 and section 225 that qualified tips and qualified overtime compensation be included on information returns. However, the 2025 version of these forms, which is the current revision, does not allow for this reporting. Additionally, the IRS recently announced that there will 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.
To address this, the AICPA’s letter recommends that Treasury and IRS:
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).
Include a safe harbor that permits individuals and tax return 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 (e.g., pay stubs or letters)
*Individual taxpayer representations of occupations, tip sheets, hours worked logs and other
documentation.
Include examples in the guidance indicating the type of documentation that will satisfy the information reporting safe harbors.
“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,” says Scott Klein, Senior Manager, AICPA Tax Policy & Advocacy. “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.”
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with 397,000 members and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting. A founding member of the Association of International Certified Professional Accountants, the AICPA sets ethical standards for the profession, attestation standards, and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state, and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, partners across the profession to build future talent, and drives continuing education to advance the vitality, relevance, and quality of the profession.
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Contact: Veronica L. Vera
202-434-9215
Veronica.Vera@aicpa-cima.com