Breaking Down the “Big Beautiful Bill” and What Employers Need to Know About Overtime and Tips

An interview with Tyler Hedge, COO of HR Butler

When the new “big beautiful bill” passed, a lot of employees and business owners thought the same thing: “Great, no more tax on overtime or tips.”

Unfortunately, it is not that simple.

We recently talked with Tyler, our COO, to clear up what this bill actually does and what employers need to prepare for in 2025 and 2026.

It’s not a payroll change. It’s a tax return change.

“One of the biggest misconceptions,” Tyler told us, “is that people think their overtime will be taxed differently on their paycheck. It won’t.”

The bill creates a tax credit at the end of the year. That means employees will see the impact on their tax return, not in each payroll cycle.

Overtime reporting is changing.

For 2025, employers must report the overtime premium portion in Box 14 on the W2. This includes:

• The “half-time” portion of time-and-a-half

• The full premium on double time or special rates

In 2026, new W2 fields will formalize this, and payroll systems will need to be ready.

Tips are the real challenge.

Per Tyler:

“Right now we understand that the voluntary tips are eligible for this tax treatment and not the automatic tips.”

Most restaurants and hospitality businesses don’t currently separate voluntary vs. automatic gratuities in their POS or payroll data. Employees will expect this benefit, but employers may not have clean tracking.

Why employers should care now

2025 will be messy. Many businesses started the year without separating tips. Systems may not be ready. Employees may overestimate what qualifies.

The best thing you can do?

• Review how you’re tracking tips

• Work with your POS provider to separate tip types

• Make sure your payroll partner is prepared for new W2 requirements

• Educate employees early so expectations are realistic

This bill can benefit workers — but only if the data behind it is accurate. As Tyler states:

 “2026 will be cleaner. But 2025 is going to be a mixed bag.”

If you want help navigating the changes, we’re here to keep things simple, compliant, and well-communicated.