In our effort to keep clients up to date on changes related to payroll tax, we are addressing One Big Beautiful Bill Act.
We want to inform you of several key payroll-related changes introduced in the recently enacted One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025. These updates may impact your payroll processes and employee tax reporting starting this year.
Employees may now deduct up to $25,000 in qualified tips and $12,500 in qualified overtime pay from their federal income taxes.
These deductions are retroactive to January 1, 2025, and phase out for individuals earning over $150,000 (or $300,000 for joint filers).
Employers must continue withholding Social Security and Medicare taxes on these earnings.
Employers are now required to separately report qualified overtime compensation on Form W-2 beginning with the 2025 tax year.
The reporting threshold for Forms 1099-MISC and 1099-NEC will increase from $600 to $2,000, effective for payments made in 2026. This threshold will be adjusted for inflation starting in 2027.
The bill makes permanent the individual and corporate tax rate reductions originally enacted under the 2017 Tax Cuts and Jobs Act.
We recommend reviewing your payroll systems and employee communications to ensure compliance with these changes. Additional IRS guidance is expected in the coming weeks, and we will keep you updated as more details become available.
If you have any questions or would like to discuss how these changes may affect your business, please don’t hesitate to reach out.
