Passed July 3, 2025, the “One Big Beautiful Bill Act” includes new federal income tax deductions for workers—but no changes to payroll processing.
🚨 Key Takeaways for Employers:
- Employees can deduct up to $25,000 in tips and $12,500 in overtime pay from their federal taxable income starting with the 2025 tax year.
- These are deductions at tax time, not exemptions from withholding.
- You must still report and withhold taxes on all wages, tips, and overtime as usual.
👥 What Employees May Ask:
“Will I see more money in my paycheck?”
No—normal withholdings continue. The benefit comes when employees file their 2025 tax return in early 2026.
📌 Other Facts:
- Applies to workers earning under $150K/year
- Federal tax only (no state impact)
- Expires after 2028 tax year
✅ What You Should Do:
- Keep reporting wages and tips as usual
- Let PaySmart handle compliance—we’ve got you covered
- Direct tax questions to an accountant or advisor
Questions? Contact PaySmart Payroll Services — we’re here to help you stay compliant and confident.