< Back to the Resource Gallery
Authored by Aprio
On July 4, 2025, President Trump signed into effect the One Big Beautiful Bill (OBBB), introducing an array of tax changes that will impact individual and entity taxpayers for tax years starting as early as 2025. Some provisions were extended and made permanent while others were completely new. Many of the changes include layers of complexity that require careful analysis, as well as a level of patience as more guidance from the Secretary of the Treasury will be needed.
There are several provisions that affect the hospitality, construction, retail, and manufacturing industries — “No Tax on Tips” and “No Tax on Overtime.” Both provisions are now in effect for the 2025 tax year and will last until the 2028 tax year.
These two provisions have a few similarities as they pertain to individual income tax implications, including:
For businesses, these provisions will create an array of administrative responsibilities including:
It will require a comprehensive understanding of what will qualify as a “tip” and “overtime compensation” as outlined in the new provisions. The Bill states in both sections that the Secretary of the Treasury has 90 days from the date of enactment to release further guidance. However, based on the information we have now, the planning can begin immediately.
Qualified tips are those voluntarily paid in cash or charged. In a presumed effort to prevent abuse, the new provision explicitly states that tips must be for occupations who have customarily received tips prior to December 31, 2024. According to the OBBB, the Secretary of the Treasury is to release a list of occupations no later than 90 days after the Bill’s enactment, presumably October 2, 2025.
After the COVID-19 pandemic in 2020, hybrid hospitality models, ranging from various delivery services to food takeout, saw an uptick in tipping. Due to the recent nature of the increase in these types of tipping models, it remains uncertain whether they will be included in the category of occupations who have customarily received tips.
Employers and employees alike have specific responsibilities as it pertains to tips. Both should continue tracking tips in a similar manner to what has been done previously.
The OBBB did not provide details for penalties if companies fail to comply with this additional reporting requirement. One can presume they would fall under the penalty guidelines for information reporting. For example, if an employer fails to provide an employee with the correct Form W-2, the penalty starts at $60 per filing plus interest with the maximum penalty in the millions of dollars.
The deduction for qualified tips serves as an opportunity for employers and employees. Employers might facilitate an environment to ethically encourage employees to provide an elevated quality of service that would warrant a higher tip. This would result in employers having an increase in their tax credits and employees having an increase in take-home pay.
In conjunction with this, businesses in the beauty industry will see an additional benefit, as the employer credit for social security taxes paid on tips has expanded to include the beauty industry.
Qualified overtime compensation refers to the amount paid in excess of the regular hourly rate. For example, if the regular rate is $20 per hour and the overtime rate is $30 per hour, the qualified overtime compensation is $10 ($30 minus $20). Employers should continue tracking overtime as usual but must now report any qualified overtime on the appropriate tax forms for employees (e.g., W-2s). This reporting is necessary for employees to claim the deduction on their tax returns, provided they meet the provision’s requirements.
With this new provision, employers should recognize that existing employees might be incentivized to increase their work hours. This change will have a direct impact on the company’s scheduling, staffing needs, cash flow, and the potential hiring of new employees. Human Resources policies related to overtime protocols and company morale will need to be reviewed and updated or perhaps implemented if they do not exist. Employers will need to carefully evaluate the economics of their company, considering the cost of hiring someone new versus the benefit of retaining an existing employee.
While it is important to emphasize that these provisions are temporary and are scheduled to expire in 2028, they also bring financial implications, administrative obligations, and layers of uncertainty at the federal and state level.
Please connect with your advisor if you have any questions about this article.
Call us at (800) 624-2400 or fill out the form below and we’ll contact you to discuss your specific situation.
This article was written by Aprio and originally appeared on 2025-07-28. Reprinted with permission from Aprio LLP.
© 2025 Aprio LLP. All rights reserved. https://www.aprio.com/no-tax-on-tips-and-overtime-what-trumps-obbb-means-for-hospitality-retail-and-construction-ins-article-tax/
“Aprio” is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC (and its subsidiaries), provide professional services. LLP and Advisory (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. LLP is a licensed independent CPA firm that provides attest services, and Advisory and its subsidiaries provide tax and business consulting services. Advisory and its subsidiaries are not licensed CPA firms.
This publication does not, and is not intended to, provide audit, tax, accounting, financial, investment, or legal advice. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Readers should consult a qualified tax advisor before taking any action based on the information herein.
A full-service accounting and financial consulting firm with locations in Bay City, Clare, Gladwin and West Branch, Michigan.
Opening its doors in 1944, Weinlander Fitzhugh is a full-service accounting and financial consulting firm with locations in Bay City, Clare, Gladwin and West Branch, Michigan. WF provides services such as, accounting, auditing, tax planning and preparation, payroll preparation, management consulting, retirement plan administration and financial planning to a variety of businesses and organizations.
For more information on how Weinlander Fitzhugh can assist you, please call (989) 893-5577.