Impact of the One Big Beautiful Bill Act (OBBBA) on Tips and Overtime Pay (2025–2028)
This article provides an overview of the One Big Beautiful Bill Act (OBBBA) and how it impacts tips and overtime wages for employees using ZIP Payroll.
Overview
This article explains how the One Big Beautiful Bill Act (OBBBA) affects tip income and overtime wages for employees using ZIP Payroll. This article provides an overview of the law, key terms, and what you can expect for payroll processing between 2025 and 2028.
The OBBBA introduces temporary federal tax relief for qualifying employees by allowing them to deduct eligible tip and overtime income when filing their 2025–2028 federal tax returns. Payroll withholding and reporting remain unchanged during this period.
What employees can claim on their tax return
Under the OBBBA, eligible employees can claim the following deductions when filing their 2025–2028 federal tax returns:
Up to $25,000 in reported tip income
Up to $12,500 in overtime wages
These deductions reduce federal taxable income, which may lower an employee’s overall tax liability or increase their refund.
Employees claim these deductions during tax filing—not through payroll.
What does not change in ZIP payroll
The OBBBA does not change payroll processing in ZIP for the 2025 tax year. Employers should continue normal payroll procedures throughout the year.
ZIP payroll processing remains unchanged in the following areas:
Withholding and deductions
Overtime and tip calculations
Paychecks and take-home pay
Payroll reporting (W-2, 1099, 941)
Employer requirements
All payroll providers including Zenoti , will continue current reporting and withholding practices.
Any IRS reporting changes will begin in 2026.
When employees can claim these deductions
Employees will receive the benefit of these deductions when they file their 2025 federal tax return in early 2026. Their paychecks in 2025 will not reflect these deductions.
These deductions are claimed directly by the employee and do not require employer configuration in ZIP.
Key takeaways
The OBBBA provides temporary tax relief for employees earning $150,000 or less.
Employees may deduct up to $25,000 in tips and $12,500 in overtime wages from federal taxable income.
These deductions apply to tax years 2025–2028.
ZIP payroll calculations, withholding, and reporting do not change during the year.
Employees claim these deductions at tax filing - not via payroll.
Key terms
Term | Description |
|---|---|
One Big Beautiful Bill Act (OBBBA) | A federal law passed on July 1, 2025, that provides temporary tax relief on eligible tip income and overtime wages. |
Eligible Employees | Workers earning $150,000 or less annually who qualify to claim OBBBA deductions. |
Tip Income Deduction | Eligible employees can deduct up to $25,000 in reported tip income from their federal taxable wages when filing their annual tax return. |
Overtime Wage Deduction | Eligible employees can deduct up to $12,500 in overtime wages from their federal taxable income when filing their annual tax return. |
Tax Years Impacted | The OBBBA deductions apply for tax years 2025 through 2028. |
Payroll Withholding | Employers continue standard tax withholding for all paychecks; OBBBA does not change paycheck amounts. |
Payroll Reporting | No changes to Forms W-2, 1099, or 941 for the 2025 tax year. Reporting adjustments are expected to begin in 2026. |