How will these layoffs affect IRS refund processing times?

Refund processing is expected to slow down, especially during the 2026 filing season, causing delays for taxpayers and tax professionals.

What areas of the IRS workforce are most affected?

Primarily administrative, correspondence, and service-center roles are impacted by this round of layoffs.

Will enforcement activities be impacted?

Enforcement hiring is continuing as a priority, possibly shifting focus toward more specialized audit and compliance efforts.

How can practitioners prepare their clients for these changes?

Filing early, maintaining detailed documentation, and using IRS electronic services are recommended best practices.

How will the IRS layoffs affect customer service and taxpayer support?

Layoffs are expected to worsen customer service. Taxpayers may face longer wait times on IRS phone lines and delays in processing mail. Assistance with account issues, identity theft, and complex inquiries will likely be slower, pushing more taxpayers to rely on automated online resources that may not fully meet individual needs.

New IRS Guidance for 2025 Tip and Overtime Deductions Explained

Adam Tahir
Nov 21
3 min read

The Internal Revenue Service has released important new guidance for the 2025 tax year that affects workers who receive tip income or overtime pay. These updates come from provisions within the One Big Beautiful Bill and introduce significant planning opportunities along with new compliance responsibilities for CPAs, tax attorneys and business owners. Because these rules take effect immediately for 2025, it is important for tax professionals and employers to understand the IRS expectations and begin preparing systems now.

This detailed breakdown provides a clear explanation of the new rules, why they matter and what advisors should begin doing in anticipation of the next filing season. If your firm relies on timely tax intelligence, this is a key update worth reviewing carefully.

What Happened

The IRS and the Treasury Department issued guidance that allows workers to deduct qualified tips and qualified overtime pay up to 25,000 dollars for the 2025 tax year. These amounts may be sourced from Forms W 2, Forms 1099 or Form 4137. The new guidance outlines how taxpayers should calculate these amounts and what counts as qualifying income.

The agencies also released transitional penalty relief for employers. Since most businesses will need time to update payroll logic, tip reporting systems and vendor software, the IRS will not impose certain penalties during the 2025 tax year if employers make good faith efforts to comply. This relief gives businesses time to adjust while still moving toward accurate reporting. It is not permanent relief, so early planning is essential.

Why This Matters for CPAs, Attorneys and Employers

These rules represent a shift in how tip income and overtime deductions are handled, which will influence both taxpayer level planning and employer level reporting for years ahead.

Why it matters for CPAs and tax attorneys

You will need to help clients understand what qualifies and how to maintain supporting records.
You may need to reconcile data from multiple sources if employers are not yet fully updated.
New questions about the interaction of these deductions with other limitations will likely appear throughout the 2025 filing season.
The guidance adds another layer to worker related deductions that practitioners must incorporate in planning conversations.

Firms that use Bizora for real time monitoring of IRS updates will be better positioned to field these questions quickly and confidently.

Why it matters for business owners

Employers in hospitality, retail and food service must assess whether current tip reporting methods capture qualified amounts accurately.
Payroll teams may need to revise W 2 coding or adjust how point of sale systems transmit tip data.
Businesses should develop internal review processes to ensure tips and overtime are reported correctly since transition relief only lasts for 2025.
Failure to prepare now can result in costly corrections in 2026.

Preparing for What Comes Next

More clarification is expected from the Treasury and IRS. Several areas could receive further detail including how specific service charges should be classified, how employers must document qualified income amounts and what format the IRS expects from electronic reporting systems.

Tax advisors should prepare clients by reviewing documentation habits early. Workers who rely on tips need to understand how to track and confirm reported amounts. Employers should begin conversations with payroll vendors so system changes can be built and tested before year end. The earlier these adjustments begin, the smoother next filing season will be.

Staying ahead of rapidly changing tax rules is becoming a competitive advantage for firms and businesses. Regular updates through tools like Bizora can help professionals respond quickly and confidently as new guidance is released.