Preparing for Potential Payroll Changes: What Employers Need to Know About the No Tax on Tips Act and OBBBA
On May 20, 2025, the No Tax on Tips Act, a standalone bill that would effectively exempt up to $25,000 in tips from federal income tax for certain workers, passed by unanimous consent in the Senate. [1] Shortly thereafter, on May 22, 2025, the One Big Beautiful Bill Act (OBBBA), a reconciliation package that provides temporary federal income tax deductions for qualified tips and overtime, passed by one vote in the House. [2] As the No Tax on Tips Act and the OBBBA make their respective ways through Congress, employers in the service industry are encouraged to consider the effects the passage of either bill could have on operations and employees. As the title, One Big Beautiful Bill Act, conveys, the “no tax on tips” provision is part of a much larger legislative proposal. However, when focusing solely on the tax deductions for tips provisions of the OBBBA, those provisions and the No Tax on Tips Act contain some similar language. Both bills allow for a tax deduct...