7/10/25 Part 1: Employee-Facing Provisions in the New Tax Act

July 10, 2025

By Jeff Robertson  &  Iris Tilley

The so called “Big Beautiful Bill Act” (the “Act”) was signed into law last week.  We’ve summarized those provisions that should be on employer’s minds as they consider how the Act may affect their employees. 

Tax Provisions Impacting Employers and Their Employees

SALT Deduction

For employees residing in Oregon and California especially, but also for employees with larger property tax bills in other Western non-income tax states, the Act contains an increased ability to deduct State and Local Taxes (SALT) on employees’ Forms 1040. This primarily will impact higher income wage earners, due to itemizing deductions and may affect their withholding decisions. The cap quadruples, subject to some income phase out, for the 2025 tax year.

“Tips” Income for Qualifying Individuals

The Act contains a deduction for up to $25,000 of income reported and received in “tips” from professions that typically receive tips, subject to an income cap.  The Internal Revenue Service is tasked with providing a list of occupations it believes are eligible for this deduction.  This only impacts Federal Income Taxes and not FICA.  State tax treatment will vary, depending on how a state’s tax code interacts with the Federal Tax Code.  The concept of tips as not taxable income may be confusing to employees.  Employers who charge mandatory gratuities in relation to a service may want to reconsider the verbiage to ensure employees can receive such tips tax-free as the law requires the tips to be voluntary from the customer. 

“Overtime” Compensation Deduction

The Act contains an above-the-line tax deduction for individuals receiving overtime compensation of up to $12,500 for individuals and $25,000 for married couples filing jointly.  Similar to tips, overtime compensation is only a Federal Income tax issue, unless a state’s tax code automatically confirms to the Federal Tax Code on an ongoing basis (Oregon’s does not).  Unlike tips, overtime is not typically recorded separately on a paycheck or on W-2, and payroll systems may need to be adjusted.  Overtime for this purpose is only such overtime as defined within the Fair Labor and Standards Act and only applies to the overtime portion, not the regular wage portion of the overtime. 

We anticipate some of the provisions will result in questions for employers, especially regarding whether an employee should be taxed on overtime wages and tips and how to report these income times on Form W-2.  We also anticipate questions regarding the application of FICA to these income types and the proper process for addressing withholding.  We are here to help with policy language and required reporting.

The Barran Liebman Employee Benefits Group assists employers with retirement and health plans.  Please contact Jeff Robertson at 503-276-2140 or jrobertson@barran.com, Iris Tilley at 503-276-2155 or itilley@barran.com, or your regular attorney at Barran Liebman if you have any questions.