"One Big Beautiful Bill" Act and what it means for W-2s & Year-End Processing
What is the OBBBA?
The “One Big Beautiful Bill” Act (H.R. 1) was signed into law on July 4, 2025. Our intro post gives more information on the background and major takeaways of the act, or you can visit the IRS OBBDA Resource Page.
What do I need to know for year-end?
This federal legislation introduces new tax reporting requirements that will affect overtime and tip reporting beginning with the 2025 tax year and expanding in 2026. The table below outlines the provisions.
Action Item: Make sure you have appropriate earnings codes set up to track overtime and tips. Reach out to support if you have questions, need additional earning codes on your time entry grid, or need to make any year-to-date adjustments to properly reflect hours.
Recently, the Internal Revenue Service (IRS) announced there will be no changes to some information returns and withholding tables for Tax Year 2025 related to the new law.
According to the IRS:
- Form W-2, existing Forms 1099 and Form 941 will remain unchanged for 2025
- There will be no change to federal income tax withholding tables in 2025
- Employers and payroll providers are advised to use existing procedures for reporting and withholding
While the bill does introduce sweeping new changes, like fewer taxes to tips and overtime, employers should continue to use current procedures for withholding and reporting.
Drafts of the 2026 Forms W-2 and W-2c have been released by the IRS. Check them out here.
The IRS is working on new guidance and updated forms for Tax Year 2026. Major changes are expected in how tips and overtime pay are reported. The IRS indicates it will coordinate with employers, payroll providers and tax professionals to ensure a smooth transition.
The IRS posted draft 2026 Forms W‑2 and W‑2c in mid‑August 2025, reflecting OBBBA provisions. These proposed changes affect how employers report tips, overtime premiums, and contributions to newly created children’s savings accounts.
Addition of New Box 12 Codes
The draft form introduces three new codes that employers must track and report. The IRS is expected to introduce new guidance and codes for reporting voluntary tips in Box 12.
- TP – Total qualified tips (per OBBBA rules).
- TT – Total qualified overtime premium (the “half” portion above the regular rate in time-and-a-half).
- TA – Employer contributions to “Trump Accounts” (for eligible children born on or after January 1, 2025).
Box 14 Split and Renumbered
- 14a – “Other” (as before). Employers may use Box 14a to report information such as state disability insurance taxes withheld, union dues, uniform payments, health insurance premiums deducted, nontaxable income, or educational assistance payments.
- 14b – Treasury tipped-occupation code (to identify employees in occupations qualifying for the new tip deduction). Employers may use Box 14b to report the treasury occupation code for an employee’s tipped occupation, which is used to report an employee’s qualified tips as required by the OBBBA. The same Box 14 changes were included in the draft 2026 Form W-2c.
OT Premium and Tips Reporting from isolved for Year-End Processing
isolved is in the process of programming two reports which will soon be available (details below). These reports will be scripted to the Year-End Output (Services > Year-End Reports) and will be generated as part of the last pay of the year or can be run on demand from CLIENT REPORTS:
- Client Level Excel Report
This report will provide a summary of Overtime Premium and Tips for each employee in a spreadsheet format. This is scheduled for the 11.17 release on 11/7/2025.
- Employee Level PDF Report
This report will include a page for each employee with overtime, detailing their Overtime Premium and Tips. This report can be distributed directly to employees and will be available with the 11.19 release on 12/5/2025.
A memo earning will be created during year-end processing to capture the estimated overtime premium. This amount will appear in Box 14 of the W-2 with the designation “Est OT Premium” with the 11.18 (11/21/2025) isolved release.
More Guidance to Come
The IRS promises more information will be shared in upcoming months about how taxpayers can claim tax benefits related to the One Big Beautiful Bill Act when they file their returns. The U.S. Department of the Treasury and IRS are preparing additional guidance for both reporting entities and individual taxpayers.
isolved is making system updates to support these changes and ensure a smooth transition once federal guidance is finalized.
As more information and clarification related to the One Big Beautiful Bill Act comes to light, our team will continue to pass along updates that will impact your business and your people.