04:05 AMERICAS
Other Year-End Considerations
to claim the deduction of up to $25,000. Calendar year 2025 is considered a transition year for reporting and dealing with the OBBBA’s qualified tax-free overtime and tips, and under the guidance from the Treasury Department, employers “may approximate a separate accounting... by any reasonable method” in reporting these amounts to workers. Proper communication to employees impacted by both provisions is imperative. Already, payroll professionals are receiving inquiries as to why these changes have not already affected employees’ take-home pay (it won’t, at least for 2025). In preparing for 2026, the language under both provisions calls for changes to withholding calculations.
The OBBBA also ensured there would be no changes to personal tax rates, to the 2017 elimination of personal exemptions (what used to be withholding allowances), and to the tax treatment of employment- related moving expenses for the private sector. However, the bill made some other changes to how payroll professionals are to address certain types of compensation for this year and 2026. The law extended tax-free employer-provided educational expenses, including payments on employee student loan debts. The $5,250 a year limit will increase each year based on inflation. The dependent care benefit will be $7,500 a year starting in 2026 (now is $5,000). The employer-paid family leave tax credit was modified and made permanent. The $600 filing threshold for paying nonemployees using Forms 1099-Misc or 1099-NEC (and others) will rise to $2,000 in 2026.
Proper communication to employees impacted by both provisions is imperative.
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GLOBAL PAYROLL MAGAZINE ISSUE 16
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