Name: jeff kuzmich - jeff kuzmich - Migrate_NTOT_02042026_5099509
Uploaded: 2026-02-26T05:52:57.175Z
Duration: 34 min 25 s
Description: jeff kuzmich - jeff kuzmich - Migrate_NTOT_02042026_5099509

Transcript for "jeff kuzmich - jeff kuzmich - Migrate_NTOT_02042026_5099509": Hello, and welcome to today's webinar. Today's audio is through your computer speakers only. There is no call in number. To refresh or reload your webinar browser session, for a PC, press the F5 key or Mac, press command R. To download and print today's content and to access additional resources, refer to the Files and Resources window. If you have questions during today's webinar, you can notify us through the Ask Us a Question window. Please note that it may not be possible for us to address each question submitted individually. However, all questions are valuable in helping us develop additional resources for your business. Calls will pop up on your screen along with a ringtone. Be sure to click submit to record your choice. And to ensure you see the pop up polls, be sure you have disabled all pop up blockers on your device. At the close of the webinar, we invite your feedback on our session evaluation. Please note, this presentation does not constitute legal advice and is for informational purposes only. Thank you again for joining us. We will now transition into today's topic. Hey everybody and welcome. Thank you so much for joining us for this very fast paced and quick and informative webinar. My name is Gene Marks. I am a certified public accountant. I work through a lot of work with Paychex, but maybe you know me because I write about lots of business issues, things that affect businesses, and on The Guardian, for The Hill, for The Philly Inquirer, Forbes Entrepreneur, and a bunch of other places. And we're gonna talk about a topic today that not only have I been writing lot about, but I've been appearing a lot on radio and TV talking about as well. Usually at a higher level, this is going to be much more detailed. This topic is all about no tax on overtime and tips. It is a super important topic, not only for your employees, but also for you if you are an employer so that you are prepared for what is going to happen. So I want to welcome you. Glad that you guys are here. Just want to make sure that we are covering everything that is on today's agenda so that you can see what we're going be doing. You're going to find out what counts as and qualifies as no tax and tips on overtime, how to handle it for pooling non qualified overtime pay involuntary gratuities. We're gonna look at some of the limitations and phase outs so that your employees know and you know when this applies and what doesn't apply. And then also we're gonna talk about not only this year, but also for next year as well and what to be prepared for and what to do if you're an employer and an employee as well. So, I'm very, very pleased to have me, with Andrew Gargana, known as Andy. He is a compliance analyst for Paychex. Andy and I have spoken a number of times before on the Paychex Thrive podcast, where we have covered this topic and other topics that affect, business owners related to HR and compliance. So Andy, super thrilled to have you here. Thank you very much for taking the time. We have a lot to cover. So I am going to forward this slide over to you and I'm going to ask you to start doing your thing. Tell us what we need to know. Hi, Gene. Thanks for having me. Hi, everybody. Like Gene said, thirty minutes is gonna be quick. We're gonna talk about the OBBBA or one big beautiful bill or OB3 as we started calling it internally for short. We only have a half hour. I could talk for hours on all the provisions on this, but we're gonna focus on the two main ones that you're probably all here for today, which is no tax on tips and no tax on overtime. So we'll jump right in. Okay. So it says no tax. Is that true? It's kind of a misnomer. You're gonna probably hear this if you haven't from some of your employees. You're going to, most likely. These are the things that we're hearing a lot from our clients. Hey, no tax on tips, no tax on overtime. Those are great political slogans. But the reality is is yes, you're still gonna pay tax. The employees are still gonna pay tax. You may have gotten questions ready from your employees saying, hey, here's my tips on my paychecks. Why are there tax coming out of this? They're still gonna come out of it. We'll get into it in more detail. But yes, they still will pay tax on it. They will get it back when they file the return at the end of the year. So that's a very important point to know. Yes, it says no tax on tips, no tax on overtime. You are still going to pay tax on it. You'll get it back later. So we'll jump right in. We'll do no tax on tips first. The good thing for all of you, a lot of the principles in both no tax on tips and no tax on overtime are similar. So I'll end up repeating myself, but you only have to learn it once. And once you know for one of them, you'll you'll know for the other one as well. So no tax on tips. What is In the bill, it was effective for 2025, so it was retroactive, and it goes to 2028. So this is a lot of information to know for something that, I guess, you could call temporary because if it's not extended further, it's gonna end after 2028. So it's a lot to get your systems ready for, get your employees ready to know what it is. So essentially what it is is effective for those years beginning this past year. Employees and some independent contractors, you can deduct certain tips that are reported on your W-two, ten ninety nine's, 4,137, or if there's some other statement that your employer provided to an employee, you can use that also to calculate your tips. The deduction itself, which we'll touch on a little bit later on, is against federal income tax only. So as an employee, you're still gonna pay your FICA taxes. You're still gonna pay your state and local taxes, and we will talk about states a little bit later as well. Maybe maybe maybe you will, maybe you won't. We'll talk about that a little bit later. But all the taxes are still gonna be paid. They're still gonna come out as an employer. You're still gonna collect them from your employees, and they will get that back when they file their personal income tax return at the end of the year. That's your form ten forty. IRS developed a new schedule called a schedule one a, and that will allow employees to calculate the credits for the no tax on tips, no tax on overtime. I believe the other one on there's no tax on car interest. But that worksheet, employer can employee can go through that and then calculate their credit. Important note, both itemizing and non itemizing taxpayers can take these deductions. So who's eligible for this? The law specifically states occupations that customarily and regularly receive tips. Okay, so what does that mean? Generally, you think about it, you can probably figure out a lot of these on your own. Anytime you go to a restaurant, your server, the bartender, if you have a hairstylist, of LA, other things like that. There are some probably maybe that you wouldn't think of. So to help you along with that, IRS and Treasury came up with something called the Treasury Tipped Occupation Code. They put out a list. There's 67, maybe almost 70 occupations on there. These are the occupations that are eligible for these or to take the tip deduction. We'll touch on that quote a little bit later, more in-depth, but that is available. And I believe it's in the resource page at the end of this presentation, so you can go take a look at it. You can tell your employees to take a look at it so they know if they are in fact eligible. One of the other important things for eligibility is social security number. If you don't have a social security number, you're not going to be able to claim this deduction on your return. And then the other, this often overlooked point, if you're filing jointly, you need to file jointly married. You cannot file separately, or you will not be allowed to take the credit. So that is something very important to keep in mind. Pass that information along to your employees because that's often overlooked. And that's a very important point that you need to be aware of. So which tips are eligible? So you've gone through that tipped treasury occupation list and found out that, hey, yeah, I'm on there. I can claim tips. So which ones are eligible? Any cash tips, and this does include charge tips. So cash and charge are both in IRS terms considered cash tips. They must be given voluntarily. So if I'm a customer and I choose if I want to give a tip and how much I want to give. So anything that is involuntary, for example, service charges, you go, you have a large party and the restaurant automatically adds a service charge on, those are not eligible for the tip credit or for the I'm sorry. Tip deduction. So we did a real simple example here. Obviously, some of yours may be some of your employees may have more complex. But just a real simple example. The restaurant server, $75 in cash tips, 130 in credit card tips, $40 in tip pooling. Tip pooling, as long as it's given voluntarily, is eligible for the deduction. And the restaurant also has a $50 service charge in there. So what you would do is add up the first three because those are all eligible, and that'll give you $245. The $50 service charge is not eligible, so you would not include that when you're figuring out how much your deduction is going to be. So, unfortunately, IRS did put or actually the law did put a limit on this, so it's not unlimited. So if you do make more than $25,000 in tips, unfortunately, you can't go over that limit. That is the limit, for both individual and joint filers. That's the maximum amount that the IRS will allow you to deduct. I believe it's indicated on the schedule one a that we referenced earlier, but that that is the limit is 25,000. There's also a phase out. So if you are a wealthier employee and you make more than $150,000 in your adjusted gross income for a single filer or $300,000 for a joint filer, there is a phase out. So every $1,000 over that limit, your credit is reduced by a $100. So just to give you an example, if you are a single filer, by the time if your adjusted gross income is $400,000, you've totally phased out of the credit and you or out of the deduction, you won't be able to take it at all. So that gives you an idea, how the phase out works. It's going to gradually decrease as you go up in income, and it will allow you to take less of a deduction. So, Andy, before we move on to overtime, just a quick question for Listening to everything that you're saying, this is something that our employees have to be concerned with because it's for their individual tax returns, it's a deduction on their ten forty like any other kind of deductions that they take. So as an employer, why should I care? Does this affect me? Because you're gonna be the first line of questions. This is brand new for everybody. So if a lot of employees, they know they earn tips, they know they earn overtime, they saw on the news maybe, hey, no tax on tips, no tax on overtime. So when they see their check and there is tax taken out, the first person they're gonna come to is their employer. So hopefully what we're providing today is just an understanding. So as an employer, you kind of know what this is. So when these questions come in, you can answer them and say, look, hey, yep, we are still taxing your tips. You're gonna get it back when you file your return at the end of the year. Maybe as an employer, maybe you're someone who gets tips in overtime and you can claim this on your own return. Great answer. And I also just want to be clear for all of you people that are watching as an employer. Andy's a 100% right. Your employees are gonna be coming to us to ask those questions. They're also gonna be coming to us to figure out because you saw the calculation. I mean, they need they're gonna need help figuring out, well, what are my eligible tips that I can be using when I take this deduction? They're gonna be asking that question because their accountants are gonna be asking them. So we have to be ready to provide that information to them. I know you're gonna talk about reporting later, but there's really no requirement to report this any differently this year, but we're still going to be asked. So this is why you're watching this webinar because your employees are going to be lining up to get these answers. And the same applies for overtime. So Andy, take us into overtime and explain how this is all going to work. Okay. Yep. You're absolutely correct, Jane. So overtime. So like I said at the beginning, a lot of the principles for overtime, are gonna be the same as they were for tips. So no tax on overtime. Again, this is for retroactive back to 2025 and it goes through 2028 unless something happens down the road and it's extended somehow. But same principles, individuals who receive overtime, certain individuals, we'll get into who those certain individuals are may deduct the qualified overtime on their personal income tax return. This will be reported on the W-two, could be on a October, although not as likely, or some possible other specified statements for 2025 only, which I will touch on that in a few slides for reporting. But again, this is similar to tips, the deductions available for your federal income tax. All employees on overtime, they're still gonna pay the federal income tax. You're going to have your standard FICA taxes, Social Security and Medicare come out. You will have state and local taxes come out as well. And also, like there's no tax on tips. This will be reported on the ten forty on that new Schedule A, as I mentioned earlier, and it is, again, both itemizing and non itemizing taxpayers are eligible to claim it. So who is eligible? So any worker who is classified as nonexempt, and the key point is they earn overtime under the FLSA, and that's a mouthful to say many times fast, the Fair Labor Standards Act. So anyone earning overtime under that, and they're not exempt, they will be eligible for this. So again, like tips, you have to have a valid social security number or you're not claiming it on your return at the end of the year. So the big question, what is considered qualified overtime? The easiest way to explain it under FLSA, again, got that right that time, that's good. FLSA says time and a half. So the qualified overtime deduction is only available on the premium portion, which is that half. So if you're paid 1.5 for overtime, the point five is the part that you can claim on your return. So for example, again, this is a very basic example. Overtime is a little bit more complicated than tips, but just a very basic example, an employee earns $20 an hour. So when they're making overtime, their rate is $30 an hour. They're paid time and a half. So that extra $10 that they earn in overtime, that's the premium portion, that is what they can claim for the credit. Again, deduction limits, they did phase this one out too. You can only deduct a certain amount. Overtime has a little different wrinkle than tips in that if you're an individual, your maximum deduction is 12,500. The joint is 25,000, but for an individual, it's only 12,500, which tips was 25,000 for both single and joint filers. This one, the little wrinkle is you can only do $12,500 for an individual. Again, the very important reminder, I'll say it again, this is set up for tips. In order to be able to do these deductions, you have to file married and jointly. There are phase out rules on this one as well. They're the exact same phase out rules as there are on tips. 150,000 adjusted gross income is the limit for single, 300,000 for joint filers, and every $1,000 over that limit, it faces out the credit by a $100. So it's exactly the same as what the no tax on tip deduction limits were. So before we jump into that, let me just reiterate for everybody viewing as well, very, very similar to what we saw with no tax on tips. Even overtime is even more complicated. But again, these deductions on your employees individual returns because the calculation is even that much more complex for overtime, this is something that we're gonna have to be prepared to provide those numbers to our employees because they're gonna be asking them. And one final thing, even though you might think this doesn't have any impact on you as an employer, In some ways it does because if you're asking your employees to spend more overtime this year, and I have a lot of clients that are doing that, can now say, you do have an incentive, you can get a deduction for a portion of this overtime. So you're gonna get some relief and and it's gonna actually be more valuable to you, than just what I'm paying you. So that hopefully may, you know, ease the pain of asking your employees to work those extra hours. But okay. So, yeah, I Andy, this is a really important part because, you know, what are our requirements for reporting? Now this is back on us, right? Yep. So the good news, as an employer 2025, you don't have to do anything. IRS release transition relief guidance. I could go through a verbatim all 30 something pages, but essentially what it says is employers have no requirements for 2025 reporting. So you don't have to do anything. Now as an employer, you're gonna wanna try and help your employees, just for the simple reason. They're gonna be coming to you. So if you can provide them something, hopefully you have already because w twos at this point have already gone out to the employees. But any help you can provide your employees, you're gonna wanna do that. But again, the IRS transition relief said employers, you don't have any requirements. You don't have to provide anything. Reason being, we know that you probably don't have all of this data or you may not have correct data because there was no requirements to track this before. It's never been done before. So anything, OB three was passed in July. So anything from January to July, you may not have been tracking these amounts and to have employers have to go back and figure this all out. IRS just said, Nope, we're gonna give you a break. We are gonna offer transition relief, which we're encouraging you to report this to your employees, but we are not requiring it, which is a very important distinction. IRS, which they usually use this language a lot, they want you to make a reasonable attempt. So as long as you can tell the IRS if they ever asked, which it doesn't sound like they're going to, because with this relief, they're not going to be assessing any penalties for good faith efforts. As long as you can prove that you tried, you can say, hey, I pulled what records I had, and this is what I provided to my employees. You'll be okay. But again, reasonable attempt. So you're just trying. You're not just saying, hey, you figure it out. You're trying to give them something and just say, hey, here's here's the amounts that we had so far up to this point. You're gonna wanna encourage your employees. Hey, I can give you whatever data I have. Ultimately, you're gonna be responsible for what you report. So go back, check your records, verify all the information before you put it on your return and make sure it's correct. Again, and as you know, if you do download this presentation afterwards on this slide at the bottom, there is a link to this transition guidance. So if you want to read through it yourself, it will go over everything that we just talked about, in more legal terms than this. So we kind of talked about this, employer responsibility. So again, you don't have one for 2025. You're going to probably wanna do something for your employees. Here at Paychex, what we did is we actually provided the information for overtime and tips that we had in our system, in box 14 labeled tips or overtime premium, just so your employees had something to go with, with the caveat that, yes, we're only as good as the information we had in our system. So if something wasn't reported, because there was no requirement to report this before, but if they didn't report something for some reason, we didn't have it, so the number may not be totally accurate. So again, as an employee, it's your job. Go through. Just make sure that the information is accurate using your records, and then you can use that to report on your ten forty. So again, there was no requirement, we did this. Others have possibly provided separate statements where you could just, it could be as simple as taking a piece of paper, typing up tips over time, putting the amount on, and then giving it to your employee. At least you're providing something to them. Again, no requirement to do so, but as an employee, you're gonna wanna take care of your employer. As an employer, you're gonna wanna take care of your employees. So anything you can give to them will be helpful. Some people just put the information online and just say, hey, log into this site. Here's your tips. Here's your overtime. Go in and get it yourself. You're you're gonna wanna make sure that there's a way they can print that out, just so they have it because not everybody uses all the online things. There's still people who will get the paper form for their ten forty, and they'll type it all out right in the numbers. So you're gonna wanna give them something they can use. So yeah. So employee responsibility. Ultimately, it is their responsibility to confirm accuracy for everything they're reporting. And this goes for everything on the ten forty, not just tips and overtime, But ultimately, if there's a problem, the employee is the one who's gonna be on the hook for it. So you wanna stress that with your employees, verify your numbers, verify any records you have. Keep a lot of records would also be advice I would give to the employees. Make sure you have everything documented. You have it all, so you can go back and say, okay, well, here's how I determined what this amount was for this deduction. Again, on this side, we do have the transition relief. So if you missed the other link, it's on here as well. So you can go in and take a look at it. The one last thing I would say for the employees, if there's any question, because as Jean mentioned, this is new and complex for everybody, not just employees, employers, even us in the payroll community. If an employee has a question, hopefully we've provided you a lot of information here that you can use to answer it. If you can't, I would encourage you to have your employees contact a tax professional, whether it's their CPA that they use, whether they come here to paychecks, whatever it is, get help. There's a lot of help out there. We did provide at the end of this, there is a list of resources. There's links to, guidance on the IRS website. IRS has done a good job putting, frequently asked questions out there and guidance. I know their guidance is not the easiest to read all the time, but the frequently asked questions are pretty understandable. They give you some certain situations you can go in and say, okay, yep. Okay. Now I know how to do this. So definitely refer them there if there's any questions. So now we get to '26 through '28. Like I said, '25, you didn't have any requirements. 2026 onward, you are going to. So IRS has developed new codes for the w two. It's gonna be mandatory. You're gonna have to report these amounts on the w two. These codes will go in box 12. Now just a caveat, the instructions for the w two are still in draft form, so they haven't finalized those yet. So there's a potential they can make more changes. We don't think they're gonna do a lot. This kinda seems like the path they've been going on for a while. So we don't think, but it is possible. So definitely check back as it gets closer to the end of the year just to make sure you're in compliance. But they are developing two new codes for box 12, TP for tips, TT for overtime, and then the additional requirements, going back to that TTAC or treasury tipped occupation code that we mentioned in the very beginning, the list of occupations. There's the codes there for employees. IRS is gonna require that on the w two now. They've taken box 14 and split it in two. So box 14 b, and it's going to be required to be reported on there on the w two. Ten ninety nines also, they added some new boxes to the ten ninety nine for reporting. They don't have a box 12 scenario where codes, can be reported, so they just added new boxes onto the ten ninety nines. So again, those are I believe those are still in draft. The final versions haven't come out yet. When they do, obviously, you wanna look at the final version. Again, we don't expect a whole lot of changes from the draft forms, but just always be aware of that when you're looking at the form. Make sure it's the final version, before you start filling it out. So employee responsibility, it's gonna be the same as what you've told your employees for 2025. They're gonna wanna report everything accurately. They're gonna have this time, they're gonna actually gonna have more detailed information, more accurate information because this is something that, whether it's you as the employer or if you have a payroll provider, it's being tracked for the whole year so that you will have this accurate information at the end of the year. You can give them an amount and say, okay. Here's your amount of tips for the year. This is what you reported. It's in box 12 here. You can take that amount, put it on the schedule one and their ten forty and calculate out their deduction. Again, ultimately, the employee is responsible for what goes on their tax return. So definitely stress that to them. Keep detailed records, always have detailed records. If there's ever a question, IRS comes back and asks for something, you can go to them with your records and say, yep, see, it's all listed out right here. And again, any questions, consult with a tax professional, whether it's a CPA, payroll provider, whomever. If you need help, don't be afraid to ask for it. So I mentioned in the beginning, we touch on the states. There are a few developments for the states. Some of them still haven't made up their mind. A lot of states would follow the Internal Revenue Code. So basically whatever the IRS did, that's what the states would do. But there are some states that have decoupled from that, so you cannot claim the tips and overtime, on your state income tax returns. Few of them are listed there, and it's just time I'm not gonna read them all off, but there are a number of states that are debating this in their state legislature. So my advice to you or your employees is check your state website where you are and see what they're gonna do for this. There should be something out there saying how they're gonna handle the no tax on tips and no tax on overtime on their tax returns. Andy, tell us what employers should be doing to prepare. So you're gonna be you're gonna wanna look at your system and make sure that hopefully, you've already looked at it when this law passed, but make sure that you have a vehicle to track these amounts. If not, if you wanna employ a third party payroll provider, we do have system modifications in place to track all of these amounts. You're gonna wanna know what your qualified tips are, what your non qualified tips are, what your overtime is so that you can tell the employees, hey, here's your amounts. And then you're also gonna want to make sure that when you produce w two slash ten ninety nine at end of the year, these amounts are on there. Just a couple other things. You might want to take a look at your tipping policy. Maybe you have a standard service charge. As we indicated, service charges are involuntary, so they're not eligible for the deduction. So maybe you want to help out your employees and maybe you get rid of that. And then maybe that increases voluntary tip amounts allowing your employees to have more tips that they can claim for the deduction. Always not just for this, but in general, you're always gonna wanna make sure you classify workers correctly. There are big penalties if you don't, but in the case of this for like the overtime and tip deductions, you're gonna wanna make sure your workers are classified correctly. And then I just kind of mentioned this, but if you are a tip dependent establishment, again, like I said with the tips, maybe you get rid of a service charge, do something voluntary just to see who knows what the compensation impact is going to be on your employees, but that's something you might want to take a look at. Again, and Gene, I think you mentioned this earlier about businesses that pay a lot of overtime. Take a look at that. Maybe try and take the sting out of having them work all those extra hours when you explain to them, hey, look, you can deduct this later. And then definitely keep monitoring the state impacts. A lot of states legislatures go throughout the year. So there could be changes at any point if they pass something in the state legislature to either follow or unfollow the federal rules on the tips and overtime. So again, helping your employees, you're gonna wanna, like I said, you're gonna be the point of contact. So if there's questions, they're gonna come to you. So you're gonna wanna establish a clear communication path with them. I presume you probably have one, but if not, hopefully everything that we've talked about will help you. So when the employees do come to you with a question, you can say, yeah. That guy Andy told me that you can do this and this on here. So hopefully this will help you. If not, there are links at the end, to IRS guidance. You can point them there, if they need help doing their their 10. Like I said, there are scenarios in there which will assist them. Again, I've mentioned this a number of times, and I'll mention it again, importance of good record keeping. That is anything taxes related. That is the backbone of it. You want to have good records. You want to be able refer to them if you need to down the road. So definitely stress good record keeping. And then just encourage them. If you need help, ask for it. You can can send them the links to the government websites, which will have more information. Excuse me. But if they do need help, tell them don't be afraid to ask. Well, was great. I really appreciate. Yep, that was really great information. I really do. We really do appreciate that. I know, and I just want to remind everybody as well, is, you know, Paychex does provide a significant amount of support, you know, not only for HR and your pay only, but also for no tax on tips and overtime. So you can read the slide, but the bottom line is you're running a business. Like, I'm running a business. Got 10 employees. We have overtime. We don't have, you know, tips issues, but you know, I have many clients that do. I I frankly don't understand how people run businesses without, outsourcing this stuff to an HR, professional, that that that's experienced with this. And again, like Andy had said everyone, you know, yes, there's no requirement this year for the reporting, but, know, your employees are gonna be asking. It's gonna be a headache and you wanna make sure that you are prepared. So lean into paychecks. They can certainly provide that support and help. Before we let you go, quick poll that I would like you to respond to please about whether or not you would like to speak with a paycheck professional about mitigating compliance risk for your business. You know, we do a number of these webinars and podcasts where we talk about all the compliance issues that is impacting us all as business owners. Remember, although the federal government has not been very aggressive on compliance under this new administration, a lot of states are. And so there's a lot of issues that we need to make sure that we are aware of and doing our thing. Andy had mentioned this and I wanted to make sure that you guys have, you know, look at this page, which is all the different resources that are available to you, not only just from paychecks, but also from the US government. All these are great links. And if you download this this presentation, you'll be able to click on these links and go directly to them so you can get help for your business. Again, Andy, you're awesome. Thank you very much for all of your knowledge. I know you and I are gonna be doing more of these throughout the year and hopefully you'll be coming on the Paychex Thrive podcast again soon so we can address and dig down to some of these issues. So thank you. Everyone else, thank you so much taking the time and watching this webinar. We hope you get some really good information and of course, put your questions through in the chat. We will respond to all of them. My name is Jean Marks. We appreciate your time. We will see you again soon. Take care.