OBBBA Resources
Navigating the One Big Beautiful Bill Act (OBBBA) just got easier with Nextep.
Since the new legislation, Public Law 119-21, became law on July 4, 2025, our team has been compiling the essential details to support your business planning.
We built this hub to serve as your roadmap as an employer. Here, you’ll find easy-to-follow employment-related resources that break down current regulations and important milestones coming up in 2026. This way, you have the right information at the right time.
OBBBA Employer’s Guide
Get our full guide on what you need to know as an employer, now and in the coming year.
Answers to your frequent OBBBA questions
Click or tap each question to see the answer.
The OBBBA is a federal law (Public Law 119-21) signed on July 4, 2025, that introduces significant changes to payroll taxes, immigration enforcement, healthcare, and savings accounts.
For our purposes, we’re focusing specifically on the employment-related impact this bill has on businesses and their employees. Get our full Employer’s Guide for a rundown of how it affects your company and people:
OBBBA Employer’s GuideActive law (2025): In 2025, you’re already seeing:
- Tax exemptions for tips and overtime (employee responsibility to calculate)
- New work authorization fees for your foreign workforce
- A direct deposit loophole to the new 1% excise tax on cash transfers sent outside the U.S. (remittances)
- Increased I-9 audits
2026-2028: Beginning in 2026, you’ll see:
- Tax exemptions for tips and overtime (employer responsibility to calculate)
- Work requirements for adults ages 19-64 who are on Medicaid
- $1,000 “Trump Accounts” for children born between December 1, 2025, and December 31, 2028, with an optional annual employer match of $2,500 max
- More guidance expected on increased I-9 audits
Get more details on each of these changes:
OBBBA Employer’s GuideNo. Tips and overtime pay are exempt only from federal income tax up to certain limits. They are still subject to FICA (Social Security and Medicare) taxes and, unless otherwise stated, state and local taxes.
It’s also important to remember that these tax exemptions will not occur on your paychecks. You will claim them when you file your federal taxes.
OBBBA Employer’s GuideLimits for 2025-2028 tax years are:
- Tips: Exemption applies to the first $25,000 of “qualified” tips per year.
- Overtime: Exemption applies to up to $12,500 in “qualified” overtime pay per year.
- Income Caps: Both benefits begin to phase out for individuals earning over $150,000 ($300,000 for joint filers) and disappear entirely at higher income thresholds.
Note the importance of the word “qualified” in acceptable tax exemptions. Read more about what does and doesn’t count:
Qualified Tips and Overtime2025 is different from the following years:
- For 2025: Since the regulations are new, employers are exempt from reporting these specific figures on W-2s for tax year 2025. Employees must calculate their own exemptions using their final pay stubs of the year or personal tip logs.
- For 2026–2028: Employers must include this info on W-2s in Box 12 using Code TP for tips and Code TT for overtime. Nextep will handle this change for our clients.
To find your overtime premium for 2025, use the pay stub from your last check date in December.
- Find your pay stub in your Elevate by Nextep™ account by tapping Pay, then the date you want to view.
- If Overtime is listed in the year-to-date (Y-T-D) earnings, take the dollar amount from the last pay stub you received for the year. Multiply it by .33. This number will be your overtime premium.
- If Overtime Premium is listed in the Y-T-D earnings, just report the dollar amount listed.
- Important: Your pay stub should be used only for overtime reporting, not to file the rest of your taxes. Please wait for your official W-2 to be released.
Learn more about how to use your Elevate by Nextep™ account:
Tech FAQ
Click here to enlarge the screenshot.
For the 2025 tax year, you only exempt the “premium” portion (the “…and-a-half” part) of your overtime pay; not the entire time-and-a-half amount. The IRS recommends the “divide by 3” method: take your total 2025 overtime pay and divide it by three to find your deductible amount.
For tax years 2026-2028, your employer or PEO will do these calculations for you and report them on the annual W-2 form.
See a more detailed rundown of how to do these calculations:
Qualified Tips and OvertimeYour tips are listed in box 7 of your 2025 W-2.
Alternatively, you can use the total qualified tips you reported to your employer on Forms 4070 or your own daily tip logs. Be sure to save your tip logs in case you need to produce proof.
Remember, for tips to be “qualified” as tax-deductible, they must be voluntary cash tips, including those given via cash, check, or credit card. Tips must be received while doing a jobs that customarily receive tips. Read more about calculating qualified tips and overtime wages:
Understanding “Qualified” TipsClick here to enlarge the screenshot.
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Legal Disclaimer
Information regarding the One Big Beautiful Bill (OBBB) is provided for informational purposes only and does not constitute tax or legal advice. Eligibility for deductions, including those referenced in IRS Notice 2025-114, depends on individual circumstances. The information provided herein is subject to revision and may not be the most current information available. Nextep strongly recommends consulting a certified tax advisor to ensure compliance and accuracy. Nextep assumes no liability for eligibility determinations or the receipt of tax credits. See IRS guidance here for more info.