Article

OBBBA impacts on HR and payroll — Key considerations for year-end planning

Sept. 16, 2025 · Authored by Gillian Florentine, Jason Arce, Brad Sheasley

As year-end quickly approaches, being prepared to ensure you’re in compliance with proper reporting is more important than ever. The One Big Beautiful Bill Act (OBBBA) has material implications on human resources (HR) and payroll. Even though we must wait for additional regulations and guidance to be released, it is essential to take stock now and determine whether your business or organization has the systems and structures in place to support the new requirements.

As introduced in the OBBBA, signed into law on July 4, 2025, there will be major changes to how employers separately report qualified tips and Fair Labor Standards Act (FLSA) required overtime compensation. The requirements in the regulations will likely have a significant impact on how your organization currently calculates, reports and files pertinent overtime wages and tips.

What changed under the OBBBA

According to the IRS, “employees and self-employed individuals may deduct qualified tips received” and the maximum annual deduction for these qualified tips is $25,000 per taxpayer with a phaseout modified adjusted gross income (MAGI) over $150,000. Additionally, the OBBBA introduces no tax on overtime payments. The maximum deduction per taxpayer is $12,500 with a MAGI over $150,000. A potential complication with these tax adjustments is the additional element of a max MAGI of $300,000 for both tips and overtime for any married taxpayers filing joint tax returns. The responsibility of this will most likely fall to the employees affected, as organizations do not have the ability to determine employees’ marital status for tax filings or joint household income.

Obstacles resulting from the OBBBA for employers

With these new changes, you’ll have to adjust to the additional complexities resulting from the OBBBA. While you still must report all tips earned, you are now required to designate which tips qualify for the OBBBA credit. Similarly, you still must pay for all overtime hours worked, but you are now required to designate what overtime wages are eligible or ineligible for the OBBBA credit.

A possible unforeseen consequence of the OBBBA is that your organizations may discover that their HR and payroll systems are not equipped with the proper reporting capabilities to handle these new requirements. You should review your HR and payroll systems to ensure that they’re able to track and report on the new requirements.