How the One Big Beautiful Bill Act (OBBBA) Affects W-2 Employees and Tipped Workers

Big changes are here! The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, is shaking up how taxes work for both W-2 workers and tipped employees.

If you earn overtime or tips, OBBBA could put more money back in your pocket. And if you’re an employer, it means new rules for payroll and W-2 reporting.

Let’s break it down in plain English.

What OBBBA Means for W-2 Employees

If you work extra hours, you’ll like this:

• Overtime pay deduction – You can now deduct up to $12,500 of overtime income (or $25,000 if you file jointly with your spouse).

• Lower federal income taxes – This doesn’t erase payroll taxes (like Social Security and Medicare), but it does shrink your federal tax bill.

• Better reporting on your W-2 – Your employer now has to clearly show how much of your wages qualify as overtime.

👉 In short: If you’ve been clocking in extra hours, OBBBA rewards you with a tax break.

What OBBBA Means for Tipped Employees

If you work in restaurants, hospitality, salons, or anywhere tips are a big part of your income, this one’s for you:

• Tip income deduction – You can deduct up to $25,000 of tips from your federal taxable income.

• Employer responsibility – Employers must now report tip earnings separately on W-2s and identify your tip-earning occupation.

• Why it matters – More accurate reporting means you not only pay less in taxes, but you’ll also have a cleaner record of your true income (which helps with things like loans, mortgages, and benefits).

👉 In short: OBBBA gives tipped workers a fairer deal—and a real chance to keep more of what you earn.

What Employers Need to Know

For businesses, OBBBA means some extra homework:

• W-2s must clearly separate overtime pay and tip income.

• Payroll software may need updates to track and report these correctly.

• The IRS is expected to keep a closer eye on industries with tipped workers.

👉 In short: Get payroll right now, or risk penalties later.

How Our Firm Can Help You Navigate OBBBA

We know tax law changes can feel overwhelming. That’s where we come in.

At Burkin's Tax & Accounting, we make sure both employers and employees get the full benefit of OBBBA without the stress.

Here’s what we offer:

• ✅ Payroll upgrades – We’ll set up your system to properly track tips and overtime.

• ✅ W-2 support – Ensuring forms are filled out correctly and fully compliant.

• ✅ Compliance checks – Catch errors before the IRS does.

• ✅ Employee education – Helping your team understand how to report tips and overtime.

• ✅ Tax planning strategies – Showing you how to maximize deductions under OBBBA.

Bottom Line

The One Big Beautiful Bill Act is great news for hardworking employees—but it also means businesses need to step up their payroll game.

With the right accounting partner, you can:✔️ Stay compliant✔️ Reduce your tax bill✔️ Keep your employees happy

👉 Ready to make the most of OBBBA? Contact us today and let’s get your payroll and taxes set up the right way.