IRS Penalties for Incorrect W-2s Under OBBBA: What You Risk
Filing W-2s with missing or incorrect Box 12 (Code TP/TT) or Box 14b (TTOC) data triggers IRS information return penalties under IRC Section 6721/6722.
Penalty Tiers (2026)
| Correction Filed | Penalty Per Form |
|---|---|
| Within 30 days of due date | $60 |
| By August 1 | $130 |
| After August 1 or not at all | $330 |
| Intentional disregard | $680 |
The Math Gets Scary Fast
| Employees | Best Case ($60) | Worst Case ($330) | Intentional ($680) |
|---|---|---|---|
| 10 | $600 | $3,300 | $6,800 |
| 25 | $1,500 | $8,250 | $17,000 |
| 50 | $3,000 | $16,500 | $34,000 |
| 100 | $6,000 | $33,000 | $68,000 |
Small Business Exception
Businesses with gross receipts of $5 million or less have reduced maximum penalties per year. But even the reduced caps can be significant for a restaurant operating on thin margins.
2025 Transition Relief
The IRS has stated that for tax year 2025, it will not assess penalties for good-faith efforts to comply with the new reporting requirements. This relief does NOT extend to 2026 and beyond.
How to Avoid Penalties
- Start tracking now. Don't wait until January to reconstruct tip data from POS reports.
- Separate qualified from non-qualified tips each pay period.
- Calculate OT premiums correctly — use 0.5x, not 1.5x.
- Assign TTOC codes to every tipped employee.
- Use software that automates the classification and accumulation.
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