OBBBA 2025 vs. 2026: What Changes and What Stays the Same

The IRS is phasing in OBBBA enforcement over two years. Here's what's different between 2025 and 2026.

2025: Transition Year

• New W-2 codes TP, TT, and TTOC are required
• IRS offers transition relief — no penalties for good-faith errors
• Employers can use "reasonable methods" to estimate qualified amounts
• Good time to set up tracking systems and processes

2026: Full Enforcement

• Transition relief expires — standard penalties apply
• "Reasonable methods" no longer acceptable — accurate tracking required
• IRS will assess penalties of $60-$680 per incorrect W-2
• Updated Form W-2 instructions provide specific guidance

What Stays the Same

• The deduction itself: up to $25K in qualified tips, plus OT premium
• MAGI phase-out thresholds
• Definition of qualified vs. non-qualified tips
• TTOC code assignments
• The 0.5x OT premium calculation

Action Items for Employers

If you haven't started (it's 2026):

1. Start tracking immediately. Every pay period you miss is retroactive work later.
2. Assign TTOC codes to all tipped employees
3. Separate qualified tips from service charges in your record-keeping
4. Track overtime hours and calculate the 0.5x premium per pay period
5. Plan your W-2 export process for January 2027

Related Guides

• What Is OBBBA?
• IRS Penalties for Incorrect W-2s
• CPA Guide to OBBBA W-2 Data