As payroll and tax professionals, we all know that legislation can create both opportunity and complexity. The recently enacted One Big Beautiful Bill Act (OBBBA) introduces several significant payroll-related provisions that will require employers, payroll providers, and tax advisors to work closely together over the coming months.
At ConnectPay, we’ve been actively preparing our systems and our clients to meet these new requirements. For CPA firms advising small and mid-sized businesses, there are three areas that deserve immediate attention:
- No Tax on Tips
- No Tax on Overtime
- Expansion of the FICA Tip Credit to Beauty and Salon Businesses
No Tax on Tips: Preparing for 2026 reporting
One of the most discussed provisions in the new legislation is the tax deduction available for certain qualifying tipped income.
While additional codes are expected from Treasury, employers should begin preparing now to accurately identify employees whose occupations qualify for the deduction and ensure payroll records support future reporting requirements.
What will be reported?
Under the legislation, qualifying tip income will be reported on employees’ 2026 Form W-2s, which will be issued in January 2027.
Current guidance indicates:
- Eligible tip amounts will be reported in Box 12 using the code “TP”.
- Associated Treasury Tipped Occupational Codes (TTOCs) will be reported in Box 14b
https://home.treasury.gov/system/files/136/Tipped-Occupation-Detailed-8-27-2025.pdf
The Treasury Department has established a specific list of occupations that qualify for the deduction. Accurate occupational classification will be critical to ensuring employees receive the intended tax benefit.
How ConnectPay is preparing
To help our mutual clients prepare, ConnectPay has already incorporated the Treasury’s list of eligible occupations into our Relay payroll platform.
Within Relay, employers can now assign a Treasury Tipped Occupational Code (TTOC) to employees who receive eligible tips through a simple dropdown selection. Employers are asked to select the occupation that represents the employee’s primary job function and the role in which tips are most frequently earned.
In addition:
- We have communicated these requirements to our clients.
- We are actively assisting employers with employee classification.
- We are encouraging businesses to review all tipped employees well before year-end.
- We are helping clients ensure reporting processes are in place before the 2026 W-2 filing season.
Our goal is straightforward: help employers be fully prepared long before Forms W-2 are issued in January 2027.
No Tax on Overtime: The importance of proper payroll coding
Another provision receiving significant attention is the deduction related to qualifying overtime compensation.
The challenge for employers is that not all premium pay qualifies.
Many businesses use terms such as:
- Overtime
- Premium pay
- Time-and-a-half
- Double time
- Holiday pay
However, the legislation focuses specifically on qualifying FLSA overtime compensation.
Why classification matters
For reporting purposes, employers need to be able to distinguish between:
- The regular hourly wage
- The overtime premium required under the Fair Labor Standards Act (FLSA)
- Other forms of premium compensation that may not qualify
Without proper separation, employers may find it difficult to accurately report eligible amounts at year-end.
What ConnectPay has done
To address this requirement, ConnectPay has enhanced payroll coding options within our platform.
Employers are now able to utilize specific earnings codes that distinguish:
- Regular earnings
- FLSA overtime premiums
- Other premium pay categories
This allows businesses to properly track qualifying overtime throughout the year rather than attempting to reconstruct the information during W-2 preparation.
For CPAs, this is an important client conversation. The earlier employers review their earnings codes and payroll setup, the easier year-end compliance and reporting will become.
Expanded FICA Tip Credit for Beauty and Salon Businesses
A lesser-known but potentially valuable provision of the legislation involves the expansion of the traditional FICA Tip Credit.
Historically, this credit has primarily benefited businesses within the restaurant industry. The new legislation extends eligibility to qualifying beauty and salon businesses.
This creates a meaningful opportunity for business owners and advisors serving:
- Hair salons
- Barber shops
- Nail salons
- Spas
- Other qualifying personal care establishments
Important eligibility considerations
As with many tax incentives, qualification is not automatic.
While additional guidance may continue to emerge, one key requirement is that at least 15% of gross receipts must be attributable to payroll in order to qualify for the credit.
Business owners should work closely with their CPA and payroll provider to determine eligibility and ensure appropriate documentation is maintained.
For firms serving salons and beauty-related businesses, this provision may represent a valuable planning opportunity that has previously been unavailable.
Why this matters for CPA firms
Legislative changes like these highlight the increasingly important relationship between payroll data and tax strategy.
The success of these new provisions depends on accurate payroll setup, proper employee classification, consistent recordkeeping, and year-end reporting.
At ConnectPay, our objective is to help our mutual clients navigate these changes proactively rather than reactively.
By addressing occupational classifications, overtime coding, and tip reporting now, employers can avoid unnecessary challenges when Forms W-2 are prepared, and tax returns are filed.
How ConnectPay is supporting our mutual clients
We’ve already begun preparing our systems and communicating with employers to support these changes.
Our efforts include:
- Adding Treasury Tipped Occupational Codes (TTOCs) within Relay
- Assisting clients with employee classification
- Enhancing earnings code structures for overtime tracking
- Educating employers on upcoming reporting requirements
- Working alongside CPAs to ensure accurate payroll and tax reporting
As additional guidance becomes available, we will continue to update our platform and communicate best practices to our clients and CPA partners.
Final thoughts
The One Big Beautiful Bill Act introduces some of the most significant payroll reporting changes in recent years. While many of the benefits are aimed at supporting workers, successful implementation will ultimately depend on accurate payroll administration and collaboration between employers, payroll providers, and tax advisors.
ConnectPay remains committed to helping our mutual clients stay compliant, reduce risk, and take full advantage of the opportunities these new provisions provide.