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OBBBA - Week 3: When Will We See the “No Tax On” Promises Kept?

If you caught the headlines when the One Big Beautiful Bill Act (OBBBA) passed, you probably saw the bold claims:

🚫 No tax on overtime! 🚫 No tax on tips!


Sounds amazing, right? But here’s the truth: those changes don’t flip on overnight.


This week, we’re breaking down when those promises actually kick in — and what it means for your paycheck.


The Timeline for “No Tax On”


  1. Overtime Premiums

    • Starting in tax year 2025, the overtime premium (the extra 0.5 on top of your regular rate) won’t be subject to federal income tax.


    • Important: Your base hourly rate for those OT hours is still taxed. Only the premium gets a break.

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  2. Tips

    • Starting with tax year 2025, the first $12,500 of reported tips will be exempt from federal income tax for single tax filers, or up to $25,000 for married filers.


    • After that threshold, normal taxation resumes.

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  3. State Adjustments

    • Some states are expected to follow suit with their own “no tax on” provisions, but rollout will be uneven.

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    • Translation: Your friend in Florida might see the change sooner than your cousin in California.


Why the Wait?


  • Payroll systems, IRS forms, and state tax codes need updates.

  • Employers and vendors need time to reconfigure pay stub reporting.

  • The IRS doesn’t want chaos during year-end reporting — phasing it in reduces errors.

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What Employees Should Do Now


Temper Expectations: 

If you’re working overtime this fall, don’t expect to see a sudden tax break on your stub.


Track Updates: 

Bookmark the IRS OBBBA FAQ page → irs.gov/OBBBA


Plan Ahead: 

If tips or overtime are a big part of your income,

think about how these changes could affect your 2026–2027 taxes.


Bottom Line


  1. The promises are real — but they’re not instant.

  2. Your wallet won’t feel the impact until 2026.

  3. That’s not a broken promise. It’s payroll reality - systems, forms, and laws take time to catch up.


If you found this post helpful, please share it with your colleagues and friends. For more insights and tips on payroll practices, don’t forget to subscribe to the blog or follow me on LinkedIn!


👉 Be sure to check back next week as we shift gears to planning: When should you start making moves to maximize your OBBBA tax breaks?

 
 
 

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