One Big Beautiful Bill Act (OBBBA)
Explore the One Big Beautiful Bill Act, offering tax relief on tips and overtime pay.
Overview
On July 1, 2025, the U.S. Senate passed the One Big Beautiful Bill Act (OBBBA). This new law introduces temporary federal tax relief on tips and overtime pay, aimed at lowering taxable wages for qualifying employees.
This provision is only available to workers earning $150,000 or less, and is in effect for the 2025 through 2028 tax years. Eligible employees with qualified tips and overtime earnings will be eligible to claim a deduction on their personal tax returns.
Definition of Qualified Tips and Overtime
The OBBBA established specific guidance on which overtime and tips earnings are “qualified” to be tax exempt:
- For overtime: only overtime mandated by the Federal Labor Standards Act (FLSA) is qualified to be tax exempt.
- If an employee is paid overtime due to a state- or local-level law (e.g., California mandates daily overtime for hours worked above 8 in a day, not just the 40 hours in a week), then those overtime wages are not tax exempt.
- For tips: only tips that are (a) voluntary, and (b) for employees in one of ~70 occupations that “customarily” have tip earnings are qualified.
- Tip earnings that are not voluntary for the customer (for example, automatic gratuities for large parties at restaurants) are not qualified for tax exemption.
- More information about qualified tips, and the occupations that are eligible to claim this deduction, can be found from the IRS here.
How will Check support OBBBA?
Changes in 2025
- In the 2025 tax year, the IRS has not mandated any changes to Form W-2 for qualified overtime or tips reporting, but they have encouraged employers to provide an estimate of qualified overtime and tips using a “reasonable method” for estimation.
- In 2025, Check will populate Box 14 of the W-2 with an estimate of the employee’s qualified overtime, calculated as 1/3 of the employee’s overtime earnings, and 1/4 of the employee’s double overtime earnings.
- This will appear under the label “Qualified OT” on the W-2.
- Employees in qualified “tipped” occupations should reference Box 7 of the W-2 to estimate qualified tips.
Changes in 2026
- In early 2026, Check will make two changes to support updated Form W-2 requirements for OBBBA:
- Check will begin collecting standard occupational classification (SOC) codes from every employee.
- This is required to determine and report whether the employee is in an occupation that is eligible to claim a tax deductions on tips.
- Check will provide a tool to read and override employees’ qualified overtime and tips balances ahead of 2026 W-2s.
- By default, Check will consider and report all overtime and tips earnings as qualified. However, if certain overtime or tip earnings should be considered non-qualified, then this tool will enable Partners to enter those as overrides on individual employees’ qualified overtime and tips totals.
- More information about this tool will be provided in early 2026.
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Last updated on August 21, 2025