SECTION 2. BACKGROUND

.01 Filing and Information Reporting Requirements Generally

Section 6041(a) requires a person engaged in a trade or business generally to file an information return with the Secretary of the Treasury or the Secretary’s delegate (Secretary) if the person made payments in the course of such trade or business to another person of fixed or determinable income such as rent, salaries, wages, premiums, annuities, or compensation in amounts above the applicable reporting threshold in any taxable year.

The information return must include the amount of the gains, profits, and income and the name and address of the recipient of the payment. A person who files a return pursuant to section 6041(a) must also, pursuant to section 6041(d), furnish to the payee a written statement showing the name, address, and phone number of the person required to make the return, and the aggregate amount of payments to the payee.

Section 6041A imposes similar filing and furnishing requirements as section 6041(a) with respect to persons engaged in a trade or business and who pay in the course of such trade or business remuneration to any person for services performed in amounts aggregating above the applicable reporting threshold during the calendar year. The information return required under section 6041A(a) must include the aggregate amount of the payments and the name and address of the recipient. A person who files a return under section 6041A(a) is required by section 6041A(e) to furnish to the payee a written statement showing the name, address, and phone number of the person required to make such return, and the aggregate amount of payments to the payee.

Information returns are also required to be filed pursuant to section 6050W(a) by certain payment settlement entities with respect to payments made in settlement of reportable payment transactions. Returns required by section 6050W(a) must include the name, address, and taxpayer identification number of the payee, and the gross amount of the reportable payment transactions to the payee. Under section 6050W(f), a payment settlement entity required to file a return must also furnish to each payee a written statement showing the name, address, and phone number of the information contact of the person required to make such return, and the gross amount paid to the payee.

Section 6050W applies to two types of transactions: (1) payment card transactions and (2) third party network transactions. All payments made in settlement

of payment card transactions must be reported in the manner described above. Section 6050W(e) provides that payments made by a third party settlement organization (TPSO) in settlement of third party network transactions must be reported only if the gross amount of payments to a payee exceeds the de minimis reporting threshold rules.

For wages paid to an employee, an employer is required under section 6051(a) to furnish a written statement to the employee if it is required to deduct and withhold from the employee a tax under section 3101 or 3402, or would have been required to deduct and withhold a tax under section 3402 if the employee had claimed no more than one withholding exemption, or if it pays remuneration for services performed by the employee. The written statement must show, among other things, the total amount of wages paid, including tips received by an employee in the course of his employment, but only if such tips are included in statements furnished to the employer pursuant to section 6053(a), and the amount of income and employment taxes deducted and withheld. An employer required to furnish a written statement to an employee under section 6051(a) must also file a copy of each written statement with the Social Security Administration (SSA) pursuant to section 6051(d). .02 OBBBA Amendments to Sections 6041, 6041A, and 6050W Before amendment by section 70433 of the OBBBA, the applicable reporting threshold in each of section 6041 and 6041A was $600. Section 70433(a) of the OBBBA increased the reporting threshold under section 6041(a) from $600 to $2,000 with respect to payments made after December 31, 2025, and before January 1, 2027. For payments made after December 31, 2026, section 6041(h), as added by section 70433(b) of the OBBBA, provides for an annual inflation adjustment to the reporting threshold under section 6041(a). Section 70433(c) of the OBBBA amended the reporting threshold under section

1 Unless otherwise specified, all “section” or “§” references are to sections of the Code.

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6041A from $600 or more to an amount that equals or exceeds the dollar amount in effect for such taxable year under section 6041(a). Before amendment by section 70432 of the OBBBA, the de minimis reporting threshold in section 6050W(e) was $600 as enacted by section 9674(a) of the American Rescue Plan Act of 2021, Public Law 117-2, 135 Stat. 4 (March 11, 2021). Section 70432(a) of the OBBBA retroactively amended the de minimis reporting threshold rules of section 6050W(e) by specifying that the amendment “take effect as if included in section 9674 of the American Rescue Plan Act.” After amendment by the OBBBA, section 6050W(e) provides that payments made by a TPSO in settlement of third party network transactions must be reported only if the gross amount of payments to a payee exceeds $20,000 and the number of transactions exceed 200 with respect to the payee. .03 New Filing and Information Reporting Requirements Under the OBBBA

(a) Deduction for Qualified Tips Section 70201(a) of the OBBBA added new section 224 to the Code, providing an income tax deduction for “qualified tips” that are received during the taxable year. Qualified tips are cash tips received by individuals in an occupation that customarily and regularly received tips on or before December 31, 2024, subject to certain exclusions. Specifically, individuals are allowed a deduction, subject to limitations, in an amount equal to the qualified tips received during the taxable year that are included on statements furnished to the individual pursuant to section 6041(d) (3), 6041A(e)(3), 6050W(f)(2), or 6051(a) (18), or reported by the individual on Form 4137 (or successor). An individual is not eligible to claim the tip deduction under section 224 if the individual is not furnished such a statement.

Section 70201(f) of the OBBBA added to the information reporting requirements of the Code for certain payments of cash tips by:

(1) amending section 6041(a) to require a payor to include on the information return filed a separate accounting of any such amounts reasonably designated as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips;

(2) adding new paragraph (d)(3) to section 6041 to provide that in the case of compensation to non-employees, a payor is required to include on the written statement furnished to the payee the portion of payments reasonably designated as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips; (3) amending section 6041A(a) to require a payor to include on the information return filed a separate accounting of any such amounts reasonably designated as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips;

(4) adding new paragraph (e)(3) to section 6041A to provide that in the case of section 6041A(a), a payor is required to include on the written statement furnished to the payee the portion of payments reasonably designated as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips;

(5) adding new paragraph (a)(3) to section 6050W to provide that in the case of a TPSO, the TPSO is required to include on the information return filed the portion of reportable payment transactions that have been reasonably designated by payors as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips;

(6) amending section 6050W(f)(2) to require a TPSO to include on the written statement furnished to the payee a separate accounting of any such amounts that have been reasonably designated by payors as cash tips and the occupation described in section 224(d)(1) of the person receiving such tips; and

(7) adding new paragraph (a)(18) to section 6051 to provide that an employer must include on the written statement furnished to the employee the total amount of cash tips reported by the employee under section 6053(a) and the occupation described in section 224(d)(1) such person.

Section 70201(j) of the OBBBA provides that the amendments made by section 70201 of the OBBBA with respect to qualified tips, including the additional information reporting requirements, apply to taxable years beginning after December 31, 2024. (b) Deduction for Qualified Overtime Compensation

Section 70202(a) of the OBBBA added new section 225 to the Code, providing an income tax deduction, subject to limitations, in an amount equal to the qualified overtime compensation received during the taxable year and included on statements furnished to the individual pursuant to section 6041(d)(4) or 6051(a)(19).

Section 70202(c) of the OBBBA added to the information reporting requirements of the Code for certain payments of qualified overtime compensation by:

(1) adding new paragraph (a)(19) to section 6051 to provide that an employer must include on the written statement furnished to the employee the total amount of qualified overtime compensation (as defined in section 225(c));

(2) amending section 6041(a) to require a payor to include on the information return filed a separate accounting of any amount of qualified overtime compensation (as defined in section 225(c)); and

(3) adding new paragraph (d)(4) to section 6041 to provide that a payor is required to include on the written statement furnished to the payee the portion of payments that are qualified overtime compensation (as defined in section 225(c)).

Section 70202(g) of the OBBBA provides that the amendments made by section 70202 of the OBBBA, including the additional information reporting requirements, apply to taxable years beginning after December 31, 2024.

.04 Penalties Penalties under sections 6721 and 6722 are applicable to payors subject to the requirements of sections 6041, 6041A, 6050W, and 6051. Section 6721 imposes a penalty for any failure to file an information return on or before the required filing date, and for any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.

Section 6722 imposes a penalty for any failure to furnish a payee statement on or before the required furnishing date to the person to whom such statement is required to be furnished, and for any failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information.

Section 6724(a) provides an exception to a penalty for any failure under sections 6721 and 6722 if it is shown that the fail

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ure is due to reasonable cause and not due to willful neglect. Under § 301.6724-1 of the Procedure and Administration Regulations, a penalty may be waived for reasonable cause if the filer establishes that there are significant mitigating factors with respect to the failure or the failure arose from events beyond the filer’s control. In addition, the filer generally must establish that the filer acted in a responsible manner both before and after the failure occurred.