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One Big Beautiful Bill Act

Eric Updated by Eric

Information in this article is subject to change as IRS and state guidance becomes available.

On July 4th, the One Big Beautiful Bill Act (OBBBA) was signed into law. Here is a what to expect as far as updates to our software.

Alert: on 8/7/25 the IRS announced there are no OBBBA changes to 2025 W2, 1099, 941 returns or withholding. "Employers and payroll providers are instructed to continue using current reporting and withholding procedures"

Payroll System

No Tax on Overtime

Only the premium amount (e.g. the .5 in 1.5x pay) is deductible.
Only overtime that conforms to federal standards is deductible (e.g., OT performed after 40 hours/week). Some states, like California, do not conform and only a portion is deductible (e.g. the portion after 40 hours/week, not the portion after 8 hours/day).
  • Withholding: there is no need to change any withholding behavior at this time. Federal guidance has not been published for 2025, and it may even be risky to modify withholding from OT since each employer is only responsible for one W-2 but the actual OT deduction amount may be reduced depending on the employee's income from other sources.
  • A new worksheet module is planned for Payroll System 2025 to help determine federally applicable OT deduction amounts to go onto the W-2.
  • Federally conforming OT payroll items will flow to the W-2 automatically subject to any IRS rules requiring it.
  • A module that creates a statement for Tips income is also planned.

These features are expected to be released at the end of 2025.

TaxTools & W4 Calculator

TaxTools and W4 Calculator updates were released in July.

States using taxable income as a starting point and have rolling conformity are presumed at this point to conform to the new deductions, until further guidance is available.

State laws are in flux as states adjust to various OBBBA provisions (bonus depreciation, R&D expensing, interaction with federal Child Tax Credit and Dependent Care Credit, etc.). States are expected to make a variety of updates in response to OBBBA, which may affect how they conform in different areas. As a result, some state-level outcomes could evolve as new legislation is enacted or conformity dates take effect.

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