How the One Big Beautiful Bill Act Will Impact Your PAYROLL

What’s This Bill All About?

Signed into law July 4, 2025, the One Big Beautiful Bill Act (OBBBA) introduces major payroll-related changes.

• Federal income tax deductions for:

  • Tips: up to $25,000/year
  • Qualified overtime pay:
    • Up to $12,500/year for singles
    • Up to $25,000/year for joint filers

• Deductions are retroactive to January 1, 2025, and will remain effective through 2028

• Designed to boost take-home pay for eligible tipped and overtime-eligible employees

• Benefits phase out for individuals earning above MAGI thresholds:

  • $150,000 for single filers
  • $300,000 for joint filers

• Employees may see more net pay—less payroll tax on tips or overtime—and payroll must update tracking and reporting accordingly

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CAUTION – Potential Risks

Don’t let the IRS catch you slipping!

• Misrepresenting tips could trigger audits
• Under-withholding on bonuses = year-end tax bill for employees
• Failure to classify wages correctly = penalty exposure
• Double-check quarterly filings during transition

We love saving tax dollars but not if it costs us penalty

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BIG PAYROLL HEADLINES

What Payroll Teams Should Do Now:

• Identify eligible tip-earning roles using industry definitions and await Treasury guidance on “customarily tipped” occupations

• Update payroll software as vendor patches become available (often before Oct 1, 2025) to add new tip-tracking fields

• Enter retroactive tip info from Jan–Jun 2025 into the system, tagged as eligible but still withholding federal taxes normally under transition rule

• Tag employees who exceed income thresholds (e.g., > $150K/$300K) so that future tips are not flagged erroneously

• Run and validate W-2 previews to confirm that qualified tips appear separately and correctly

• Communicate to staff that any tax benefit they receive will appear at tax-filing time (2026 returns), not paycheck-by-paycheck in 2025

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ARE YOU READY TO MAKE PAYROLL EASIER?

At Jacobson Lawrence & Co. Payroll transcends mere transactions—it’s a partnership.

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Have a payroll question? Need help understanding a tax notice? We’re just an email or phone call away from a real person who speaks payroll fluently.

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Masters of Payroll

Our team is steeped in compliance expertise, constantly staying ahead of every payroll regulation shift (including the much discussed Big Beautiful Bill). From tip deductions to bonus exemptions—we meticulously handle it all on your behalf.

Customized for You

We shun the one-size-fits-all approach. Whether your payroll is for five employees or fifty, your business receives our undivided attention, every single time.

Surprisingly… Enjoyable

We’re not automatons. We’re passionate individuals who love our work. And we’re pretty delightful conversationalists—even when discussing tax codes.

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Email: info@jlco.co