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The Internal Revenue Service has issued transition penalty relief for the 2025 tax year to assist employers and taxpayers adjusting to new information-reporting rules for qualified overtime compensation.
Beginning in 2025, P.L. 119-21, Section 70202 allows workers who receive qualified overtime compensation to deduct the “half” premium portion of time-and-a-half wages — the amount paid above their regular hourly rate under the Fair Labor Standards Act (FLSA). This deductible amount must be reported on a Form W-2, Form 1099, or another IRS-specified statement furnished to the individual.
New Employer Reporting Obligations
Under the law, employers are required to file information returns with the IRS or, for Form W-2, with the Social Security Administration, detailing the total qualified overtime compensation paid. To ease the transition, the IRS issued Notice 2025-62, which grants penalty relief for both employers subject to these new filing rules and taxpayers claiming the related deduction.
The relief also extends to the qualified tips deduction under Section 70201, part of the same statutory package.
Additional Guidance Expected
The IRS indicated that further guidance will be released to help taxpayers understand how to claim deductions for qualified overtime compensation. More information regarding the provisions of P.L. 119-21 and related reporting rules is available on the IRS website.
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