What Employers Need to Know About OBBBA: Overtime & Tips Reporting

The Opportunity for a Better, Balanced Budget Act (OBBBA), signed into law in July 2025, introduced a wide range of tax and labor changes that affect both individuals and businesses. For employers, two key areas to pay close attention to are overtime pay rules and tip reporting requirements.

Overtime Pay Updates

One of the most notable provisions under OBBBA is the adjustment to the reporting requirements related to overtime pay. Effective January 1, 2026, employers will be required to provide employees with their qualified overtime compensation figures. This means more complexity for payroll teams when calculating overtime pay and withholdings when they work over 40 hours in a week.

Employers should:

• Understand what qualifies as qualified overtime compensation to ensure employees are being provided with the correct information for their individual taxes.
• Budget for higher payroll costs, as systems will need to be updated and there will be more complexity in reporting.
• Update payroll systems and time-tracking practices to ensure compliance starting immediately.  Guidance will be issued for 2026 filings, but employers are required to report overtime in 2025 using a “reasonable method”.

Tips Reporting Requirements

The service industry also sees changes under OBBBA, with new requirements aimed at improving transparency in tip reporting. Employers are now required to:

• Report all pooled and distributed tips more frequently, with quarterly filings in addition to annual reporting.
• Provide employees with clear wage statements that separate base pay from tips.
• Maintain accurate, contemporaneous records of tips received and distributed, whether cash or electronic.

These requirements are designed to ensure both workers and the IRS have a clearer picture of tip income. Employers who do not comply could face penalties or increased audit scrutiny.

Preparing Your Business

The new rules bring added complexity to payroll administration. Employers in industries such as restaurants, hospitality, and retail will feel these changes most directly, but any business with hourly employees should take notice.

Steps to take now include:

• Conducting a payroll audit to determine who may be impacted by the overtime changes.
• Training managers on how to track hours and tips accurately.
• Working with your CPA or payroll provider to ensure reporting processes meet OBBBA’s new standards.

How DWD Can Help

Staying compliant under OBBBA doesn’t have to be overwhelming. Our team at DWD CPAs & Advisors can help you review classifications, streamline payroll, and stay ahead of new reporting requirements.

Have questions about how OBBBA may affect your business? Contact us today to discuss the best strategies for your company.