The One Big Beautiful Bill Act has sparked curiosity among employees and payroll departments regarding its various tax breaks, particularly on overtime pay. According to Tasha Clark, a payroll manager at Armanino, a Top 25 Firm based in San Ramon, California, there is considerable interest and some misconceptions about the implications of the overtime rule.
While the headline may suggest an automatic increase in pay due to tax exemptions on overtime, the reality is that employees will receive the tax deduction at the end of the year when filing their personal taxes. The Internal Revenue Service (IRS) recently announced that it will not be making any changes to withholding tables or information returns, such as Forms W-2, 1099, and 941, until next year.
This decision may provide temporary relief for overworked payroll departments. Nevertheless... employees are still seeking clarification on the tax breaks. As per the IRS, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay, specifically the overtime premium, "up to a certain limit," "from 2025 through 2028." A source for this article is Accounting Today. The IRS's limited guidance so far has contributed to the confusion... with many employees misunderstanding the constraints and implications of the tax breaks.
Consultants may recommend that payroll departments and employees take a cautious and informed approach to understanding the tax breaks under the One Big Beautiful Bill Act. Given the IRS's limited guidance, consultants may suggest that payroll managers, like Tasha Clark, provide clear and detailed explanations to employees about the implications of the overtime rule, emphasizing that the tax deduction will be received at the end of the year, not immediately.
Consultants may also advise payroll departments to closely monitor IRS updates and guidance, "as changes to withholding tables and information returns are expected next year." Consultants may recommend that employees seek personalized advice from tax professionals to ensure they fully comprehend the constraints and implications of the tax breaks... particularly regarding the overtime premium deduction up to a certain limit.
By taking a proactive and informed approach... payroll departments and employees can navigate the complexities of the One Big Beautiful Bill Act and maximize their tax savings.
New Tax Overtime Laws
The recent changes to tax overtime laws have significant implications for employers and employees alike. As businesses adapt to the new regulations, they must also consider the impact on their overall compensation strategies. One key area of focus is the classification of exempt versus non-exempt employees, as this determination can greatly affect overtime pay and tax liabilities.
Employers must carefully review their employee classifications to ensure compliance with the updated laws.
In addition to classification, employers must also consider the administrative burdens associated with tracking and reporting overtime pay. The new laws require accurate and detailed records of employee work hours, which can be a challenge for businesses with complex scheduling systems or remote work arrangements.
To mitigate these challenges, many employers are turning to technology solutions... such as time-tracking software and automated payroll systems, to streamline their processes and reduce errors.
As employees become more aware of their rights under the new tax overtime laws, "they are increasingly seeking guidance on how to maximize their compensation." This has led to a growing demand for financial education and planning resources, "particularly in the areas of tax planning and benefits optimization." By understanding their options and taking proactive steps to manage their finances... employees can make the most of the new laws and achieve greater financial stability and security.
A source for this article is Accounting Today.
The One Big Beautiful Bill Act is sparking questions from employees and payroll departments about how to handle the various tax breaks, including on overtime pay.• • • •
The Internal Revenue Service's announcement Thursday saying it would not be making any changes for the rest of tax year 2025 to withholding tables or to information returns such as the Forms W-2, 1099 and 941 until next year may help overworked payroll departments for now, while also boosting tax savings next year ahead of the midterm elections for many taxpayers.
But employees still want to know about the various tax breaks.
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