Applies to Basic Payroll, Full Service Payroll
The One Big Beautiful Bill (OBBBA) introduced new federal tax rules that affect payroll, most notably around tipped income and overtime pay. Below is an overview of these changes and links to related help resources.
Where to Learn More
For step-by-step guidance in Patriot Software, see the related help articles covering how to add tipped occupation codes to employee profiles, how to indicate FLSA overtime for W-2 reporting, how employees can find their tip and overtime deduction amounts, and how to generate tip or overtime wage reports for employees who request them. Because these are federal tax provisions, be sure to also check IRS guidance for the most current filing and withholding requirements.
Tips and the OBBBA
The OBBBA created a temporary federal income tax deduction for qualified tips, often referred to as "no tax on tips." Eligible employees in occupations that customarily and regularly received tips before 2025 can deduct a portion of their reported tip income when filing their federal return, generally through 2028. This deduction applies to income tax only, so employers must continue withholding Social Security, Medicare, and federal income tax on tips as usual through payroll.
Video Walkthrough
Help and Resources for Tips and OBBBA
FLSA Overtime and the OBBBAThe bill also introduced a temporary federal income tax deduction on qualified overtime pay, sometimes called "no tax on overtime." Employees may deduct a portion of the extra half-time premium pay required by the Fair Labor Standards Act, generally through 2028. As with tips, this is an income tax deduction claimed on the employee's return, not a payroll withholding exemption, so employers continue to withhold taxes on overtime wages the same way they always have. Employers should track and report qualified overtime separately so employees have the information they need for their taxes, and be ready for updated W-2 reporting requirements.
Video Walkthrough
The video shows a quick overview on how to indicate FLSA overtime in payroll.