The One Big Beautiful Bill Act (OBBBA) creates significant reporting requirements for payroll software platforms and employers. Below is a comprehensive summary of the four main features of the OBBBA impacting payroll tax reporting, including how they impact your day-to-day payroll processing, and what you need to know about year-end tax reporting. Rest assured, Fingercheck is ready to report this data.
Please note, this article is provided for general informational purposes only and does not constitute legal, tax, accounting, or benefits advice. Requirements and agency guidance may change. Employers should review current IRS instructions and consult qualified advisers before making reporting, withholding, or benefit-plan decisions.
No Tax on Overtime
Summary: The “One Big Beautiful Bill" (Working Families Tax Cut) enacted a temporary federal income tax deduction for qualified overtime compensation from 2025 through 2028. This is limited strictly to the Fair Labor Standards Act (FLSA) required overtime premium (the “half” in “time-and-a-half” for hours over 40 in a workweek), not total overtime pay.
Does this change regular paycheck withholdings?
No. You will continue processing payroll as usual. Overtime pay remains subject to regular Federal Income Tax withholding (FITW), FICA (Social Security & Medicare), FUTA, and state/local payroll taxes. Employees claim this deduction directly on their personal tax returns.
How is this reported on Form W-2?
In addition to total overtime wages showing in Boxes 1, 3, and 5 of the W-2, qualified overtime pay must be reported in Box 12 using Code TT.
Overtime wages are also included in Box 16 (State wages, tips, etc.) and 18 (Local wages, tips, etc.).
Is there penalty relief for reporting?
No. During tax year 2025, the IRS offered a temporary “grace period” (IRS Notice 2025-62) that allowed employers to report overall wages without penalizing missing overtime breakdowns. That transition period has ended. Effective starting with the 2026 tax year (W-2 forms processed in early 2027), reporting qualified FLSA overtime in Box 12 using Code TT is mandatory. The IRS will actively enforce penalties for missing, inaccurate, or omitted overtime figures.
What else do I need to know?
IMPORTANT: To support OBBBA overtime compliance, Fingercheck customers who have employees who have received overtime earnings during the current year must take the following steps to ensure compliance and accurate W-2 reporting:
Verify Overtime Classifications:
Navigate to Setup > Payroll > Earnings
Locate your overtime earning code and click the pencil icon to edit it
Ensure the Earning Type is set to OT - Overtime Wages
If the earning is not set to OT - Overtime Wages, this means those wages will not be considered as overtime wages for OBBBA reporting, and they will not show in Box 12 of the W2 with Code TT.
If the earning is set to OT - Overtime Wages, this means those wages will be considered as overtime wages for OBBBA reporting, and they will show in Box 12 of the W2 with Code TT.
Update this field as needed.
Click Save.
You can review the Paid Hours With OT Estimate (FLSA OT) report in Fingercheck under the Reports > Timecard page. Run this report for the payroll date range to include all payrolls processed within the tax year. The total for each employee in the PremiumOTAmount column is what will be shown in Box 12 of the W2 using Code TT.
In order for wages to show on this report in the PremiumOTAmount column and in Box 12 of the W2 using Code TT, the earning must be set up with tax type of OT - Overtime Wages.
Helpful IRS resource(s):
No Tax on Tips
Summary: The “One Big Beautiful Bill" (Working Families Tax Cut) enacted a temporary federal income tax deduction for qualified tip compensation from 2025 through 2028. Employees working in eligible tipped occupations are eligible for a federal income tax deduction up to $25,000 per year on reported cash and charged tips. (Note: Mandatory service charges automatically added to bills do not qualify).
Does this change regular paycheck withholdings?
No. You will continue processing payroll as usual. Tips reported for employees remain subject to regular Federal Income Tax withholding (FTW), FICA (Social Security & Medicare), and state/local payroll taxes at the time paychecks are issued. Employees claim this deduction directly on their personal tax returns.
How is this reported on Form W-2?
In addition to total tip wages showing in Boxes 1, 5, and 7 of the W-2, The total amount of cash tips are to be reported in Box 12 using Code TP.
Employers must also populate Box 14b with up to two official Treasury Tipped Occupation Codes (TTOC) representing the employee's eligible tip role. If any tips were received in a nonqualifying occupation, then “000” must be input as one of the occupation code(s).
Tip wages are also included in Box 16 (State wages, tips, etc.) and 18 (Local wages, tips, etc.).
Is there penalty relief for reporting?
No. During tax year 2025, the IRS offered a temporary “grace period” (IRS Notice 2025-62) that allowed employers to report overall wages without penalizing missing tips or occupation code breakdowns. That transition period has ended. Effective starting with the 2026 tax year (W-2 forms processed in early 2027), reporting all cash tips in Box 12 using Code TP and populating the Treasury Tipped Occupation Code in Box 14b is mandatory. The IRS will actively enforce penalties for missing, inaccurate, or omitted tip reporting figures.
What else do I need to know?
IMPORTANT: To support OBBBA tip compliance, Fingercheck customers who have employees who have received tip earnings during the current year must take the following steps to ensure compliance and accurate W-2 reporting:
1. Verify Tip Classifications:
Fingercheck has classified all tips as qualified for Box 12, code TP by default. If you have employees with non-qualified tip earnings, the earning type will need to be updated in order to have accurate and compliant W-2 reporting. This needs to be completed by December 31, 2026. Fingercheck encourages verifying and updating this information prior to December 21, 2026 to ensure adequate time is available for any corrections needed.
Any Earning with Earning Type of TIPS - Tips Qualified, will classify those tips as qualified tips and will show those as tip earnings in Box 12 of the W-2 with code TP.
Any Earning with Earning Type of TIPSNQ - Tips Non-Qualified, will classify those tips as non-qualified tips, but they will still show those as earnings in Box 12 of the W-2 with code TP. Non-qualified tips will trigger an SOC code of 000 to be populated in box 14 as one of the two SOC codes.
If you need to update the earning type on a current tip earning:
Navigate to Setup > Payroll > Earnings
Locate your tipped earning code and click the pencil icon to edit it
Update the Earning Type
Click Save.
If you need to add an earning for tracking tipped wages:
Navigate to Setup > Payroll > Earnings
Click +Add
Click Add Custom
Enter in a code, short description, and description for the tipped earning.
Set the Earning Type depending upon if this should be treated as qualified tips (TIPS - Tips Qualified) or non-qualified tips (TIPSNQ - Tips Non-Qualified)
For any tips which have already been provided to the employee and should not be paid to the employee directly again (such as with cash tips), be sure to scroll down and click to ensure the “Imputed Income” box is checked. This documents the earnings for reporting and taxation purposes only, and does not pay these earnings again to the employees through payroll.
Click Save
This help article helps define each of the earning code fields.
2. Update SOC Codes:
For employees receiving qualified tips, or those in Treasury Tipped Occupation Code (TTOC) roles, the employee must be assigned an SOC code in Fingercheck by December 31, 2026 to ensure correct IRS reporting. Fingercheck encourages verifying and updating this information prior to December 31, 2026 to ensure adequate time is available for any corrections needed.
Helpful IRS resource(s):
Trump Accounts (Child Tax-Advantaged Accounts)
Summary: Created under the One Big Beautiful Bill (Working Families Tax Cut), Trump Accounts are a specialized type of tax-advantaged savings accounts for eligible children under age 18, allowing up to $5,000 in total annual contributions per beneficiary. They function similarly to traditional IRAs. Children born between 2025 and 2028 receive a one-time $1,000 initial contribution directly from the federal government.
How do Trump Accounts Impact Employers?
Employers are not legally required to offer or fund Trump Accounts, but the OBBBA created a tax framework (Section 128) allowing businesses to offer them as an employee fringe benefit.
How do employer contributions and deductions work?
Employer Contributions: Per IRS Section 128, if an employer has set up a formal separate written Trump Account Contribution Program (TACP), the contributions can be excluded from an employee's gross income. Section 128 also states, if a formal separate written Trump Account Contribution Program has not been set up, the employer contributions require normal payroll taxes to be withheld.
If an employer has set up a formal separate written TACP, employers can contribute up to $2,500 annually per employee. Qualifying employer contributions are excluded from the employee's gross income. They are exempt from Federal Income Tax Withholding (FITW), but the employer contributions remain subject to FICA (Social Security & Medicare), and FUTA payroll taxes.
Note on the Cap: The $2,500 limit is per employee, not per child. If an employee has three children, the employer's total contribution spread across those children's accounts cannot exceed $2,500 total in a given year. Whatever amount the employer contributes counts directly toward that child’s total $5,000 annual contribution limit from all combined sources.
If you need to add a deduction for tracking qualified Trump account employer contributions (excluded from gross income):
Navigate to Setup > Payroll > Deductions
Click +Add
Click Add Custom
Enter in a code, short description, and description for the deduction
Set the Tax Type to “530AER - 530A Account Employer Contribution”
If the employer has already funded, or plans to fund, the Trump account outside of payroll, they’ll need to scroll down and check the “Calculate Only” option. This ensures no funds are paid to the employee again, but the amounts contributed outside of payroll will be added into the payroll records to ensure it is documented on the W-2 and other reporting accurately, and that the funds are taxed appropriately.
If the employer has not funded the Trump account outside of payroll, and wishes to submit the funds through automated ACH direct deposit through payroll into the Trump Account, the employer should not check the Calculate Only field. They must also first confirm with the Fingercheck team that they have the automated ACH direct deposit feature turned on, which is an additional $25.00 per month fee.
Once it’s confirmed the ACH payee feature is turned on, the employer can set up a new Payee with Pay Method of DirectDeposit. These instructions will guide you through the process.
Be sure to enter the ABA routing number, Account Number, and Account Type for the Trump account and then click Save.
The employer must then add the Payee to the employer contribution Trump account deduction using the “To apply a payee for a specific employee’s deduction” instructions. These instructions will guide you through the process.
If you need to add a deduction for tracking non-qualified Trump account employer contributions (not excluded from gross income):
Navigate to Setup > Payroll > Deductions
Click +Add
Click Add Custom
Enter in a code, short description, and description for the deduction
W-2 Box 14 Label: Enter the description for how you want this to show in Box 14 of the W-2
Set the Tax Type to O - Post Tax (e.g Garnishment, Voluntary)
Click Save
Employee Contributions: Employees can choose to contribute to their child's account via post-tax payroll deductions or pre-tax salary reductions if offered through a Section 125 plan.
Pre-Tax (Section 125 Plan): If an employee funds a dependent’s Trump Account via pre-tax salary reductions through a Section 125 cafeteria plan, this is treated as Section 128 employer contributions. These counts toward the $2,500 annual employer limit per employee.
If you need to add a deduction for tracking qualified Trump account employee contributions (pre-tax):
Navigate to Setup > Payroll > Deductions
Click +Add
Click Add Custom
Enter in a code, short description, and description for the deduction
Set the Tax Type to “530A - 530A Account Employee Contribution”
Click Save
After-Tax Payroll Deductions: If an employee funds a dependent’s Trump account using traditional after-tax dollars directly from their paycheck (not through a Section 125 plan), this does not count toward the $2,500 employer limit (though they apply toward the child’s overall $5,000 annual account cap).
If you need to add a deduction for tracking non-qualified Trump account employee contributions (after-tax):
Navigate to Setup > Payroll > Deductions
Click +Add
Click Add Custom
Enter in a code, short description, and description for the deduction
Enter the description for how you want this to show in Box 14 of the W-2
Set the Tax Type to O - Post Tax (e.g Garnishment, Voluntary)
Click Save
How is this reported on Form W-2?
Employer Contributions:
Qualifying employer contributions are reported in Box 12 using Code TA.
In addition, the employer contributions are excluded from Box 1 of the W-2, but included as wages in Box 3 and 5. Whether they are required to show in Box 16 and 18 varies per State and Locality. Please check your State and Locality websites to confirm if those wages should be included in those boxes.
Employer contributions above the limit, or made outside of a qualifying Section 128 program, are wages and income to the employee.
Employee Contributions:
Pre-Tax (Section 125 Plan):
On the W-2, these wages are excluded from Box 1, but included in Box 3 and 5, and depending upon your State and Locality, they may be included in Box 16 and 18.
The contributions must also be reported in Box 12 using Code TA.
After-Tax Payroll Deductions:
On the W-2, these wages are included in Box 1, 3, 5, 16, and 18, because post-tax dollars do not reduce taxable gross wages.
Employers are not required to report after-tax deductions on the W-2, though they can choose to add the contributions to Box 14 of the W-2 as informational.
Is there penalty relief for reporting?
No. Effective starting with the 2026 tax year (W-2 forms processed in early 2027), reporting qualifying employer contributions and pre-tax employee salary reductions to a Trump Account in W-2 Box 12 Code TA is mandatory. The IRS will actively enforce penalties for missing, inaccurate, or omitted Trump Account reporting figures.
Helpful Government Resources:
Form 1099-NEC
Summary: Starting in tax year 2026 (forms provided in January 2027), Form 1099-NEC includes dedicated fields to comply with the OBBBA tip and overtime reporting mandates for independent contractors in certain categories. The changes related to the Form 1099-NEC are:
Box 1a: Total nonemployee compensation (the same figure previously reported in Box 1)
Box 1b: Cash tips—included in Box 1a; used by the recipient to calculate the qualified tip deduction.
Box 1c: Treasury Tipped Occupation Code (TTOC).
Box 1d: Qualified overtime compensation—included in Box 1a; used by the recipient to calculate the qualified overtime deduction on Schedule 1-A.
Additional changes to be aware of for the 1099-NEC 2026 tax forms:
For the 2026 tax year, form 1099-NEC only needs to be provided to contractors who have earnings of $2,000 or more for the tax year.
Fingercheck will only provide form 1099-NEC to contractors who had earnings of $2,000 or more for the tax year.
Helpful IRS resource(s):