Navigating the One Big Beautiful Bill (OB3) with BambooHR Payroll

BambooHR provides support for the One Big Beautiful Bill (OB3), which introduces temporary federal income tax deductions for qualified tips and overtime pay from January 1, 2025, to December 31, 2028. This guide outlines eligibility, deduction limits, and reporting requirements. Key steps include reviewing deduction limits, identifying eligible employees, tracking qualified income, preparing for reporting, and communicating changes to employees. Employers can deduct up to $25,000 in tips and $12,500 in overtime, with specific eligibility criteria. BambooHR will ensure compliance with IRS regulations and provide necessary updates. Resources are available for payroll administrators and employees to navigate these changes effectively.

  • Jun 23, 2026
  • Knowledge

Title
Navigating the One Big Beautiful Bill (OB3) with BambooHR Payroll
Article Text
BambooHR supports One Big Beautiful bill using BambooHR Payroll and BambooHR Time & Attendance (formerly BambooHR Time Tracking).

How BambooHR Supports OB3:

BambooHR is actively monitoring IRS guidance and building native Payroll and Time & Attendance support so you can remain compliant without reworking your processes. Some OB3 functionality is available today, and additional automation is in progress to support full reporting requirements.

Summary:

The One Big Beautiful Bill introduces temporary federal income tax deductions for qualified tips and overtime pay earned between January 1, 2025, and December 31, 2028. These deductions do not affect state or local taxes. This guide explains eligibility, deduction limits, reporting requirements, and how BambooHR Payroll will support these changes.

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Table of Contents

Who This is For

This information applies to:

  • Employees who regularly receive tips or work overtime.
  • Payroll administrators and HR managers who use BambooHR Payroll.
  • Accountants and finance teams tracking federal reporting compliance.

Before You Start

Before applying these changes, confirm that:

  1. You are processing federal payroll (these deductions do not apply to state or local taxes).
  2. You have a valid Social Security Number (SSN) for each employee (and spouse, if applicable).
  3. Your payroll is subject to FICA taxes; these still apply to tips and overtime.
  4. You are using the most current BambooHR Payroll tax configuration (updates will be released once IRS guidance is finalized).
Steps to Prepare for the One Big Beautiful Bill

1. Review Deduction Limits

  • Tips: You can deduct up to $25,000 in qualified tips from taxable income.
  • Overtime: You may deduct up to $12,500 in qualified overtime pay.
    • Both deductions phase out by $100 for every $1,000 over the income threshold ($150,000 individual / $300,000 joint).

2. Identify Eligible Employees

  • Tip deduction eligibility: Employee must customarily receive tips in their profession as of December 31, 2024.
  • Overtime deduction eligibility: Applies only to overtime pay required under FLSA (40+ hours/week).
    • Excludes state-specific daily overtime or collective bargaining overtime.

3. Track Qualified Income

  • Qualified Tips: Must be voluntary and not part of mandatory service charges.
  • Qualified Overtime: Only includes the premium portion (the additional 0.5x rate).
    • Example: If an employee earns $20/hour and works 10 overtime hours, only $100 (0.5 × $20 × 10) is deductible, not the full $300.

Retroactive Support for Overtime

BambooHR tracks qualified overtime if you use the Time & Attendance add-on. To comply with the OBB3 regulations, we have recalculated all qualified overtime for you. You can find those calculations in the Approved Hours report.
 

If you track overtime using an external source, an admin will need to import any qualified overtime hours that were worked before March 18, 2026. Overtime worked on or after March 18, 2026, is automatically tracked by BambooHR and added to the Approved Hours report.

4. Prepare for Reporting

  • For 2025, employers may estimate qualified amounts using a reasonable method.
  • For 2026, the IRS will release updated Form W-2 codes:
    • Box 12 (TP)  Qualified tips
    • Box 12 (TT)  Qualified overtime compensation
    • Box 14b  Treasury tipped occupation code

5. Communicate to Employees

Inform employees that:

  • These deductions apply only to federal taxes.
  • Their paystubs will not show the deduction amount (it applies at tax filing).
  • Differences may appear between pay statements and W-2 forms due to the partial nature of the overtime deduction.
Variants by Role
RoleWhat You Need to Do
EmployeeTrack your reported tips and confirm overtime hours accurately reflect premium pay. Consult a tax professional before filing.
ManagerVerify time entry and ensure employees correctly record tips.
Payroll AdminConfigure BambooHR Payroll to categorize “Qualified Tips” and “Qualified Overtime.” Review W-2 output once IRS forms update.
Common Errors & Fixes
SymptomCauseFix
Paystub totals do not match W-2W-2 reports only premium portion of overtimeReview overtime rules under FLSA and confirm calculations.
Deduction missing in employee tax dataEmployee not in an eligible tipped occupation.Verify against IRS list once published.
Unable to claim deductionMissing or invalid SSN.Ensure correct SSN on file for all employees.
BambooHR Payroll not reflecting deductionsIRS configuration update not yet released.Wait for BambooHR Payroll patch post-IRS guidance.
Frequently Asked Questions
What is the difference between "non-taxable" and "still paid"?

Non-taxable means the amount is not subject to federal income tax when you file your return (because it can be deducted under the law).

Still paid means you still receive the full amount in your paycheck. However, other taxes may still apply, such as Social Security and Medicare payroll taxes, and potentially state or local income taxes, depending on where you live.

Does OB3 change how employees are paid?

No. Employees are still paid the same amounts. OB3 only affects how certain portions of tips and overtime are taxed at the federal level.

Escalation & Status

If deductions do not appear as expected or W-2 formatting differs from IRS guidelines:

  1. Contact BambooHR Payroll Support or chat with us by clicking the "?" icon in your account, then choose Chat with Us.
  2. If you manage 941-eligible accounts, contact BambooHR Payroll Support.
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