The “One Big Beautiful Act” introduces significant changes to employer payroll processes, including new withholding guidelines and reporting requirements.
Withholding Updates
Standard Deduction Adjustments (2025):
- Married Filing Jointly/Surviving Spouse: $31,500
- Head of Household: $23,625
- Single/Married Filing Separately: $15,750
Personal Exemptions:Permanently repealed, directly impacting withholding calculations.
New Deduction Opportunities
Qualified Overtime Deduction:
- Deductible: Premium portion of FLSA overtime pay
- Cap: $12,500 ($25,000 joint)
- Phase-Out: Begins at MAGI $150,000 ($300,000 joint)
- Reporting: Must be separately listed on W-2 or 1099
- IRS transition guidance expected for 2025
Qualified Tips Deduction:
- Deductible: Tips in IRS-designated occupations
- Cap: $25,000 (limited to net income for self-employed)
- Phase-Out: Same as overtime
- SSTBs under Section 199A are ineligible
- IRS to publish qualifying occupations by Oct. 2, 2025
Reporting & Compliance
- Employers must separately report qualified overtime and tips
- 1099 threshold raised to $2,000 (from $600), with inflation indexing starting 2026
Employer Action Steps
Experian recommends employers:
- Update payroll systems for new reporting categories
- Communicate changes clearly to employees
- Monitor IRS guidance for 2025 implementation
