Under the One Big Beautiful Bill Act, beginning with tax year 2026 employers must separately report qualified tips and qualified overtime on Form W-2 so employees can claim the new deductions (available 2025-2028). 2025 was a penalty-free grace period, but non-compliance in 2026 and beyond can trigger penalties. The tips/overtime break is a deduction only; wages remain subject to FICA and other payroll taxes and employer withholding is unchanged.
Home › Founders News › Taxes & Grants
Starting tax year 2026, employers must separately report tips and overtime on W-2
Why this matters for founders
If you employ tipped or overtime-eligible workers, update payroll to track and separately report qualified tips and overtime on 2026 W-2s now, since the grace period ends with tax year 2025.
Source: Venable LLP
Food & BeverageE-commerce / RetailLocal ServicesBeauty & Wellness #obbba#payroll#taxes#hiring#compliance#operations
Get briefs like this tuned to your business.
In the app, Founder Briefs are personalized to your country, industry and stage, and you can save the ones that matter.
Related updates
More that helps you.
UK employer NIC stays 15% on a £5,000 threshold for 2026/27; Employment Allowance £10,500
For the 2026/27 tax year (from 6 April 2026), employer Class 1 National Insurance remains at 15% and the secondary threshold at which it becomes payable stays at £5,000 per year, c…
California statewide minimum wage rises to $16.90/hour on Jan 1, 2026
California's statewide minimum wage increased from $16.50 to $16.90 per hour effective January 1, 2026, applying to employers of all sizes. The white-collar exempt-employee salary…
IRS 1099-K threshold reverts to $20,000 and 200 transactions; the $600 rule is repealed
Under OBBBA the Form 1099-K reporting threshold for third-party payment platforms (Stripe, PayPal, Square, marketplaces) reverts to more than $20,000 in gross payments AND more tha…
IRS interest rate climbs to 7% for Q3 2026 underpayments and refunds
The IRS underpayment and overpayment interest rate rose to 7% for the quarter beginning July 1, 2026, up from 6% in Q2 2026, and applies to both individuals and corporations. The r…
Keep exploring
Related across the site
ToolGustoGusto runs full-service payroll for US businesses, handling paychecks, tax filing, and direct deposit, plus benefits, onboarding, and contractor payments. It automates federal, state, and local payroll tax compliance.ToolDocuSignDocuSign lets you send documents for legally binding electronic signature and track their status. It handles contracts, NDAs, offer letters, and other agreements with an audit trail.TermEIN (Employer Identification Number)A unique nine-digit number the US IRS assigns to your business for tax and identification purposes, like a Social Security number for your company.AI advisorWally the WorrierGaps & loose endsGuidePlan a new hire's first week rightA new employee's first week sets the tone for everything after. Plan training, checklists, and a 30-day check-in so your first hire ramps up fast and feels set up to win.ToolCalendlyCalendly is a scheduling tool that lets people book meetings with you by picking an open slot, syncing to your calendar and avoiding back-and-forth emails.