You might have heard about the new federal law referred to as the “Big Beautiful Bill” about no taxes on tips and overtime, but how does that work and what does that mean to your employees?
A key point to note is that this is a tax deduction. Employees still pay taxes on overtime and tips but get a tax deduction when they file taxes. So, employees will have to wait until tax season when they may get a refund. The good news for employees is this change begins in the 2025 calendar year. However, it ends on December 31, 2028.
Note that there are limits to this tax deduction. Tips have a $25,000 limit and overtime is capped at $12,500. There are rules around joint filers alongside income cap limits. Of course, there are many factors affecting how much someone owes in taxes and thus impacts how much they can take in deductions.
Affected employees may wish to change their tax withholdings. Oftentimes it is difficult to calculate without outside help, such as from their financial or tax person. It is even more difficult to calculate if it also affects state taxes. To change tax withholdings: employees can do so directly in our online portal.