Unlocking Savings: New Tax Breaks for Overtime and Tips - What Employers Need to Know
In a sweeping move set to reshape employee paychecks, the newly enacted One Big Beautiful Bill Act (OBBBA) introduces two significant federal tax deductions for hourly workers: one for overtime pay and another for tip income. Dubbed the “No Tax on Overtime” and “No Tax on Tips” provisions, these changes mean that from 2025 through 2028, many employees can exclude a portion of their overtime wages and tip earnings from federal taxable income . This offers a welcome tax break for workers across various sectors – from nurses and factory employees logging extra hours to servers and bartenders collecting tips. However, it also raises key wage-and-hour considerations for employers nationwide. Businesses of all kinds must navigate new payroll reporting requirements, adjust withholding practices, and consider broader impacts on compensation structures and labor strategies. This alert provides an overview of the OBBBA’s deductions, explains who is affected, and outlines best practices for emplo...