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ARTICLE · 31 JULY 2025

OBBBA's Tips + Overtime Tax Break: Reclassification Considerations, Reporting Requirements, Industry Impact + More

Jackson Lewis P.C.
Jackson Lewis P.C.
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Jackson Lewis P.C.

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The 2025 federal budget law, the "One Big Beautiful Bill Act" (OBBBA), contains numerous provisions that directly impact employers. (See Federal OBBBA Round-Up: What Employers Need to Know Now.)...

United StatesEmployment and HR
Justin Barnes
Justin Barnes
Jeffrey W. Brecher
Jeffrey W. Brecher
Keith A. Dropkin
Keith A. Dropkin
Felice Ekelman
Felice Ekelman
Amanda A. Simpson
Amanda A. Simpson

Takeaways

  • Employers will need to update payroll and reporting systems to meet OBBBA's new requirements for reporting employees' tips and overtime earnings.
  • The temporary tax deductions for tips and overtime provide opportunities to restructure compensation policies to maximize employees' nontaxed income.
  • Until IRS regulations and guidance flesh out further details of what the new law requires and allows, deductions on tips and overtime earnings are uncharted territory — employers should consult with counsel before undertaking drastic changes to established pay practices.

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The 2025 federal budget law, the "One Big Beautiful Bill Act" (OBBBA), contains numerous provisions that directly impact employers. (See Federal OBBBA Round-Up: What Employers Need to Know Now.) Among these provisions are temporary tax deductions on tipped earnings and overtime pay. Both deductions

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