04:05 Issue 14

04:05 AMERICAS

income tax-free, as well as a maximum total adjusted gross income amount employees need to fall under before being able to claim amounts as tax-free. Under the law, many workers indeed may qualify and experience a complete exemption from federal income tax for their overtime pay or tip amounts received in 2025. But others, who either receive amounts above thresholds set by the law, or, whose total income exceeds the maximum amount set for benefiting under both provisions, will still pay taxes on their tips and overtime pay. Both new deductions only apply to the federal income tax. Taxes for Social Security and Medicare (HI) continue to apply. What We Know About The Overtime Provision The overtime provision of the OBBBA is effective for four calendar years: from 2025 through 2028. Other aspects of the law that are understood include: The law is applicable to those with a Social Security number and who are covered under Section 7 of the Fair Labor Standards Act (FLSA) as not exempt to receive overtime pay.

For 2025, transition language in the law will allow employers more flexibility for reporting this year’s overtime amounts.

somewhat less than the original promise: no tax on tips, no tax on overtime payments. While employers will deal with creating accumulators and new reports, qualified employees won’t likely see the benefit of the new law this year, even with the 2025 effective date, because, for now, employers will continue to withhold federal income taxes on all tip amounts and overtime pay amounts as prescribed previously. The process for claiming the “above the line deductions” from taxable income means individuals who qualify—at least this year-- won’t benefit from the lessening of taxes until they file their individual returns in 2026. The tip and overtime tax changes have limits on amounts of tips and overtime that qualify as

52 I 04:05

GLOBAL PAYROLL MAGAZINE ISSUE 14

Made with FlippingBook - Share PDF online