Sometimes the IRS makes announcements that sound small but have big consequences for business owners. That’s exactly what happened on August 7th, 2024, when the IRS revealed that they will not update key tax forms for 2025.

At first glance, this might not seem like a big deal. But if you employ people who earn tips or overtime pay, this decision could create major challenges for your business—unless you start preparing now.

What the IRS Actually Announced

For the 2025 tax year, the IRS confirmed that it will not make any updates to critical forms, including:

• W-2s

• Form 941s

• Federal income tax withholding tables

This creates a major problem because lawmakers have been pushing for “no tax on tips” and “no tax on overtime” provisions to help workers. Normally, the IRS updates tax forms to reflect new laws, but this time they’re leaving things as they are.

That means the standard W-2 won’t include special boxes or breakdowns for tip income or overtime pay that qualify for tax breaks.

Why This Matters for Employers

You might be thinking, “Well, isn’t that my employees’ problem?” Not exactly. Here’s why:

• Employees will expect to take advantage of these tax breaks.

• Their tax preparers will ask for documentation showing separate totals for tips and overtime.

• If you can’t provide that information, your employees will be frustrated, and you could face compliance risks.

In other words, while the IRS won’t make it easy, they’ll still expect you to track and report everything properly.

The Risks of Doing Nothing

If you don’t take action now, here’s what could happen:

• Employee frustration: Workers may miss out on tax savings and blame you, not the IRS.

• High turnover: Employees may leave for companies that provide proper documentation.

• Compliance issues: In case of an audit, you’ll need proof of accurate records.

How to Prepare for 2025

The good news is that with some proactive steps, you can protect your business and even turn this into a competitive advantage.

Here’s what to do:

1. Update Payroll Tracking

Start recording tip income and overtime pay separately from regular wages in your payroll system. Don’t lump everything together.

2. Require Accurate Tip Reporting

Make sure employees are consistently reporting their tips to you. Unreported tips create risks for both you and them.

3. Create a Supplemental Statement

Since the W-2 won’t break it down, provide employees with an additional year-end statement showing:

• Regular wages

• Qualifying tip income

• Qualifying overtime pay

This document will make tax filing easier and reduce headaches.

4. Document Your Processes

Write down your new payroll procedures so you can show proof of compliance if needed.

5. Communicate With Employees

Be proactive—explain what’s changing, how you’re preparing, and how this helps them save on taxes. Position yourself as the employer who cares about financial wellbeing.

Turning Compliance Into a Competitive Advantage

While many businesses will scramble at the last minute, you can use this change to:

• Attract better employees by showing you’re proactive about their financial future.

• Retain staff by helping them maximize their tax savings.

• Build trust with accountants, payroll providers, and even customers by demonstrating professionalism.

One of my clients, a restaurant owner, used this approach to communicate with staff. The response was so positive that even employees from competing businesses reached out about job opportunities.

Final Thoughts

The IRS’s decision not to update tax forms for 2025 may sound small, but it has huge implications for any business with tipped or overtime workers.

Instead of viewing this as a burden, use it as a chance to:

1. Upgrade your payroll systems.

2. Support your employees with proper documentation.

3. Position your business as professional, compliant, and employee-focused.

Every tax change creates two groups: businesses that scramble and businesses that thrive. With the right systems in place, you’ll be in the second group.

If you’re unsure how to implement these changes, now is the time to seek professional tax guidance. Staying ahead today will save you headaches tomorrow—and could make your business the employer of choice in your industry.

Want to dive deeper? Check out Tiffany’s book, Your Biggest Expense: How to Legally Pay Less in Taxes to Keep More Wealth, for a step-by-step guide to claiming every credit you qualify for and structuring your business to minimize taxes year after year. Grab your copy at yourbiggestexpense.com and start keeping more of what you earn today.

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