One Big Beautiful Bill Act (OBBBA)
What is OBBBA?
The One, Big, Beautiful Bill Act effects federal taxes, credits and deductions. It was signed into law on July 4, 2025, as Public Law 119-21, and takes effect in 2025. For more information on the OBBBA, review this FAQ.
How does this impact payroll and taxes?
The provisions of No Tax on Tips and No Tax on Overtime as outlined in the OBBBA allow eligible workers to deduct a portion of their overtime pay and qualified tips from their taxable income, effectively exempting it from federal income tax.
How is TriNet addressing this for ASO clients?
No Tax on Tips:
TriNet is introducing new pay types for tips:
Cash Tips
There are two earning categories to choose from for Cash Tips. These earning categories capture amounts previously paid to the employee. These amounts are considered imputed income, are not paid to the employee through Payroll but are accurately reported on the employee W-2 as earned wages.
Qualified Cash Tips
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A qualified cash tip is a specific type of voluntary payment that goes to an employee in a tipped occupation. The payment must be made by the customer free from compulsion, meaning it is not a mandatory service charge or automatic gratuity that the customer cannot modify or remove.
Non-Qualified Cash Tips
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A non-qualified cash tip is a payment that is considered a tip but does not meet the criteria defined by the IRS under OBBBA. A non-qualified cash tip is not voluntary, meaning the customer must have the right to determine the amount or remove the charge. Mandatory service charges or automatic gratuities are considered wages, not qualified tips.
Credit Card Tips
There are two earning categories to choose from for Credit Card Tips. These earning categories allow pay of tip amounts that were previously paid on a credit card to the employer. These amounts are paid to the employee through payroll and are accurately reported on the employee's W-2 as earned wages.
Credit Card Tips (Qualified)
- A qualified credit card tip is a voluntary payment from a customer for services, paid via card or electronic means, where the customer freely sets the amount, not an employer-mandated service charge, and it goes to an employee in a tipped occupation.
Credit Card Tips (Non-Qualified)
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A non-qualified credit card tip is a payment that does not meet the criteria defined by the IRS under OBBBA. A credit card tip is considered non-qualified if it is a mandatory service charge or automatic gratuity, mandatory preset tip, or prepaid gratuity paid before service is rendered. Non-qualified credit card tips are treated as standard wage income.
No Tax on Overtime:
The amount eligible for the employee to claim as a deduction only includes the premium portion of overtime, which is the “half” portion of the “time-and-a-half” pay for overtime hours and is reported on the employee Form W-2.
What is changing?
- Beginning December 22, 2025, TriNet will update how overtime is displayed on the pay run, payroll reporting, and employee pay stubs. This change does not impact the payroll calculations, only the display of the premium portion tied to overtime pay.
- Instead of overtime being paid at 1.5 times the regular rate of pay, overtime premium earnings will be paid at .5x the regular rate of pay and all hours worked will be paid at the regular rate of pay. If you use our Time & Attendance system, this change will be applied automatically. This will appear as a separate line item on their pay stub.
- If you manually add or upload hours to your pay run, you will need to report the premium portion of overtime separately for each employee starting with your first check date in 2026.