OBBBA Payroll FAQs Employers Are Asking in 2026
OBBBA Payroll FAQs Employers Are Asking in 2026
If you are hearing a lot about the One Big Beautiful Bill Act but not getting clear answers on what it actually means for employers, you are not alone.
We keep hearing the same questions from payroll, HR, and finance teams. Does this change payroll processing? Do employers need to set up new deductions? What happens this year? And where does employer responsibility really begin and end?
Below are clear, practical answers to the OBBBA payroll questions employers are asking most right now.
Q: Does OBBBA change payroll processing for employers?
No. OBBBA does not change how employers calculate wages, overtime under the Fair Labor Standards Act, or payroll taxes.
OBBBA created new federal income tax deductions for individuals related to qualified tips and qualified overtime compensation for tax years 2025 through 2028. These deductions are claimed by the employee when they file their federal income tax return. Employers are not responsible for calculating or applying the deduction through payroll.
Payroll tax obligations remain unchanged. Social Security and Medicare taxes still apply to the full wage and tip amounts.
For employers, the focus stays where it has always been: accurate payroll, compliant timekeeping, and proper reporting.
Q: What are “qualified tips” under OBBBA?
This is where a lot of confusion starts.
Under OBBBA, individuals may deduct qualified tips received in occupations the IRS identifies as customarily and regularly receiving tips, as long as those tips are properly reported.
Qualified tips generally include voluntary cash tips and charged tips, regardless of whether the customer tips in cash, by card, or through a point-of-sale system, as long as IRS reporting requirements are met.
Service charges are different. Mandatory service charges are not tips and do not qualify.
Employer takeaway: your responsibility is not to calculate the deduction. It is to maintain accurate tip reporting processes and clean payroll records that support proper reporting.
Q: What counts as qualified overtime compensation?
Only overtime required under Section 7 of the Fair Labor Standards Act qualifies for the deduction.
There are two points here that tend to trip employers up.
First, not all overtime-like premium pay – such as shift differentials, company policy, a collective or bargaining agreement, or on-call time qualifies. Similarly, overtime paid solely because of state or local daily overtime rules does not qualify for the federal deduction.
Second, only the overtime premium portion qualifies. In plain terms, the portion paid above the employee’s regular rate is what may be treated as qualified overtime compensation for deduction purposes. Straight-time wages do not qualify.
Even though the deduction is claimed by the employee, accurate timekeeping and correct overtime calculations remain essential.
Q: Does OBBBA affect payroll taxes?
No. Qualified tip and qualified overtime deductions apply only to federal income tax for employees. Social Security and Medicare taxes still apply to the full wage or tip amount, and employer payroll tax responsibilities do not change.
Q: Are employers required to calculate or apply the deduction?
No. Employers do not calculate the deduction, apply it through payroll, or change withholding practices to make the benefit happen. Employees claim the deduction on their federal income tax return.
The employer’s role is to maintain accurate payroll, time, and tip records and to be prepared to answer employee questions during tax season.
Q: What changes for employers this year?
For most employers, day-to-day payroll processing will look the same.
Where employers should pay attention is reporting and documentation. The IRS has treated 2025 as a transition period while additional guidance continues to develop. Employers may voluntarily provide qualified tips and qualified overtime information in additional year-end reporting fields, such as informational boxes, to help employees file accurately.
The right approach is not to overhaul payroll systems prematurely, but to stay informed, keep records strong, and work with a payroll partner who monitors compliance changes as they evolve.
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Learn more in our February OBBBA update webinar
Because guidance around OBBBA continues to evolve, we are hosting a live OBBBA update webinar in February for employers who want a deeper walkthrough and the opportunity to ask questions.
OBBBA Update Webinar
February 12, 2026 | 11 a.m. ET
Live virtual session
If you cannot attend live, registration ensures you receive the recording.
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Q: What should employers be doing now?
A practical approach works best.
Employers should:
- Confirm timekeeping systems accurately support FLSA overtime calculations
- Review tip reporting processes for consistency and compliance
- Ensure payroll records are complete, accurate, and well documented
- Keep HR and payroll teams aligned on what OBBBA does and does not change
OBBBA is not about adding complexity to payroll. It is about understanding where employer responsibilities end and employee tax filing begins.
How CTR helps employers stay ahead
At CTR Payroll | HR, our role is to help employers stay compliant, informed, and confident as regulations evolve, without adding noise or confusion.
For a complete overview, webinars, and employer FAQs, visit our OBBBA Employer Resource Center: https://ctrhcm.com/obbba-resources
If you want a second set of eyes on how this applies to your payroll and timekeeping setup, we’re always happy to help.
✴️Need help with compliance? Contact CTR today!
Disclaimer: This blog is for general informational purposes and is not legal advice.
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