Tax Changes on Tips, Overtime and Meals 

Given recent tax law changes affecting employers, companies will want to ensure as soon as possible that payroll systems and accounting policies are ready to support these changes. In particular, required changes for information reporting and income tax reporting will be effective this year. Although not all employers have these issues, quite a few do. 

Starting with 2026 earnings, many employers will need to report tips including cash, credit card and other similar payment forms and tipped occupation codes to employees on Form W-2. Employers should confirm that their payroll providers have systems that can properly identify and segregate this qualified tip information. The Form W-2 for 2026 will have new boxes and codes for reporting qualified tips and each employee's tipped occupation.   

Recent IRS guidance clarified that the only overtime eligible for the qualified overtime deduction is the overtime required by the Fair Labor Standards Act for weekly hours worked above 40 hours. The FLSA overtime is almost always the half portion of time-and-a-half overtime. Starting with amounts paid in 2026, an employer that pays overtime will have to report this qualified overtime on Form W-2. An employer that pays various types of overtime, such as double time, required state overtime, and collective bargaining unit overtime, must be able to identify and separate them so that the payroll system can feed the proper FLSA overtime amount into the new Form W-2. 

Starting this year, certain employer-provided meals that are treated as non-taxable or partly non-taxable for employees will no longer be tax deductible by the employer. The two main categories of meals are Section 119 meals for the convenience of the employer and the Section 132(e)(2) meals provided at an employer-provided eating facility. To determine the lost deduction for these expenses, employers should review their general ledger items for expenses related to the operation of section 132(e)(2) employer provided eating facility (including labor) or related to the meals provided under section 119.

This article is part of our March 2026 Newsletter. 

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