Moulton & Hardin OneSource Client Newsletter Special Edition - JULY 2025
One Big Beautiful Bill Act - Enacted July 4, 2025
M&H OneSource is committed to keeping you informed. As you probably heard, Congress passed and the President signed what they refer to as, HR1 "One Big Beautiful Bill Act", OBBBA for short. "The Tax Cuts and Jobs Act" (TCJA) was signed in 2017, and the OBBBA serves as an extension and modification of the TCJA to make many of its temporary provisions permanent. This bill delivers significant federal income tax relief on tips and overtime, preserves existing TCJA payroll rules, and adds permanent small changes to benefits and reporting for year 2025-2028. FICA, state tax, and unemployment contributions remain unchanged.
🧾 Payroll & Tax Changes Coming in 2025
Here’s what employees and payroll teams need to know about the new law:
✅ New Tax Breaks for Tips and Overtime
Tips: Starting in January 2025, employees can deduct up to $25,000 per year in tips from their federal income taxes (still reported on W‑2 and taxed for Social Security and Medicare).
Overtime: Employees can also deduct the overtime premium portion (the extra half time - for example, if an employee is paid $14 per hour for regular earnings, and $21 for OT, only the $7 premium pay is eligible for the new tax deduction) of their pay (up to $12,500/year - or $25,000 for married filing jointly) from federal income tax. State and FICA taxes still apply.
For 2025, employers must continue to withhold federal income tax on tips and overtime pay as usual. Employees claim the deductions when they file their 2025 returns next spring.
📌 These deductions won’t reduce FICA (Social Security + Medicare) or state taxes — just federal income tax.
🧮 Payroll Reporting Updates
W‑2 Changes: Starting with January 2025 earnings, tips and overtime will be listed separately on the W‑2.
Withholding Adjustments: IRS will update tax withholding tables, so paycheck amounts may change in 2025.
Payroll systems and Form W-4 remain unchanged for 2025; no employer action is required this year.
📄 1099 Reporting Threshold Increased
Businesses now only need to issue a 1099 if they pay $2,000+ (up from $600) to a contractor in a year.
🎓 Benefit Updates
Student Loan Repayment: Employers can offer up to $5,250 tax-free per year to help with student loan payments.
Child Savings (Trump Accounts): Tax-free employer contributions allowed; government deposits $1,000 for newborns.
Dependent Credit: The maximum Child Tax Credit is set to increase to $2,200 per qualifying child for the 2025 tax year, up from the previous $2,000.
Paid Family Leave: A new tax credit is coming for employers who provide paid family or medical leave.
🏢 What This Means for You
Employees could see lower federal tax liabilities if they earn tips or work overtime.
Payroll will continue to track overtime and tips separately by earnings code.
Once the new tax tables (Publication 15-T) and accompanying guidance are released by the IRS (likely late 2025), employers can update payroll and stop withholding federal income tax on qualified tips and overtime pay for wages paid in 2026 and beyond.
📅 What’s Next?
We’re updating our payroll and HR systems now behind-the-scenes to prepare. You’ll see these changes take effect as of January 2026.
At this time, there are no customer actions needed within your UKG Ready solution.
There will be no changes to how you pay your employees, calculate overtime, or report tips. The upcoming updates will affect how employees file their taxes and, eventually, how the information presented on their W-2 forms.
Nothing in this publication is to be construed or interpreted as tax or legal advice
