Compliance updates, analysis, plus HR and payroll best practices from HR One
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Recent changes affecting the 2025 tax year have prompted employees to take a closer look at their pay history, particularly tip income and overtime pay. Employers should be prepared to explain what was reported through payroll and what remains the employee’s responsibility at filing time.
This update summarizes what was reported in 2025 and what employers should expect during filing season.
What Was Reported in 2025
During the 2025 calendar year, payroll reporting and tax withholding on tips and overtime pay continued under existing federal and state requirements. There were no changes to how these wages were paid, taxed, or reported through payroll.
Tip income processed through payroll and overtime hours and earnings were recorded on employee paystubs and included in year-end wage reporting, consistent with prior years.
What Has Changed at Filing Time
For the 2025 tax year, employees may be eligible to claim a federal income tax deduction related to certain qualifying tip income and overtime compensation. This deduction is claimed by the employee when filing their tax return and does not alter payroll processing or employer reporting obligations.
Any tax benefit related to this change occurs at the individual filing stage, not through payroll.
Where This Information Appears
As a practical matter, the information needed to support this deduction should be found on the employee’s 2025 paystubs, including:
Reported tip income
Overtime hours worked
Overtime pay earned
Year-end or final paystubs are commonly used to summarize this information for tax preparation purposes.
Access to Paystub Information
For employers that use HR One for payroll, tip and overtime information appears on employee paystubs. Employees may access current and historical paystubs through Employee Self-Service, where pay history is maintained for reference during tax preparation.
Employers that do not use HR One for payroll should confirm with their payroll provider how tip and overtime information is displayed on paystubs and how employees can access their paystub history.
What This Does Not Change
This update does not reflect a change in payroll rules or employer responsibilities.
In 2025:
Tips and overtime remained taxable wages,
Payroll withholding requirements remained in effect
Employer tax liability did not change. Employers are not responsible for determining employee eligibility for the deduction. Any specific questions from employees regarding their eligibility for the deduction or its calculation should be directed to a qualified tax professional.
Employer Takeaway
From an employer standpoint, this is primarily a filing-season awareness issue. Ensuring paystubs clearly show tip and overtime information and communicating where employees can access pay history can help reduce confusion during tax filing season.
Employee Communication Template
HR One has created a template employers may use to communicate this information to employees. The template is intended as a starting point only and should be reviewed and adjusted as needed to reflect each employer’s specific workforce, payroll practices, and internal policies. Employers remain responsible for addressing any organization-specific considerations and for ensuring communications are accurate and appropriate for their workplace.
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