When the One Big Beautiful Bill Act passed in mid-2025, it introduced two new deductions — “no tax on tips” and “no tax on overtime.” The rules have evolved since then. As of this year, the IRS has finalized the details, the 2026 W-2 form, and the list of qualifying occupations. Here’s where things stand.

The key point for business owners: While these deductions are claimed by eligible workers, employers have new payroll and reporting responsibilities for 2026. If you have tipped or overtime-eligible employees, now is the time to make sure your payroll systems are set up to track and report the required information correctly.

What Employers Should Know About No Tax on Tips and Overtime:

• Both the “no tax on tips” and “no tax on overtime” deductions are retroactive to 1/1/2025 and expire 12/31/2028.
• Tips and overtime remain subject to Social Security and Medicare taxes for both employer and employee — this is an income tax deduction, not a payroll tax exemption.
• Tips must be voluntary — not service charges. A tip only counts if the customer decides the amount; mandatory service charges or automatic gratuities don’t qualify for the deduction.
• The overtime deduction covers only the “half-time” premium portion, not straight-time pay.
• Married taxpayers must file jointly to claim either deduction.

Final 2026 Rules for Tips, Overtime, and W-2 Reporting

• Tips deduction: up to $25,000, phasing out starting at $150,000 MAGI (single) / $300,000 (joint), fully gone at $400,000/$550,000.
• Overtime deduction: up to $12,500 single / $25,000 joint, same phase-out thresholds as the tips deduction.
• Qualifying occupations are now a closed, final list: Over 70 job types across food service, hospitality, personal care, and similar fields are included — each with its own Treasury Tipped Occupation Code (TTOC).
• Owners who receive tips do not qualify: If you (or anyone with a 5%+ ownership stake) receive a “tip,” the IRS treats it as something other than a qualified tip. This applies regardless of industry — so an owner/chef or owner/bartender taking tips at the counter is excluded even though their staff isn’t.
• The 2026 W-2 has new boxes: These are effective for wages paid in 2026 (the form you’ll issue in early 2027):
  • Box 12, Code TP — total qualified tips
  • Box 12, Code TT — total qualified overtime
  • Box 14 splits into 14a (everything that used to go in Box 14) and 14b (the employee’s Treasury Tipped Occupation Code)

What this means for businesses now:

• If you have tipped or overtime-eligible employees, confirm with your payroll provider that their system can capture qualified tips and overtime separately, and can assign the correct TTOC for 2026.
• If you’re an owner who also works the floor or the line and takes tips, don’t count on this deduction for yourself.
• Keep good records now — the systems side of this is what will save you headaches at year-end.

This is general information, not tax advice for your specific situation — If you’d like help determining what these new rules mean for your business, schedule a strategy session with us.

Preparing for a workers’ compensation audit can feel overwhelming, especially when you are trying to pull together a year’s worth of payroll information at the last minute.

Fortunately, QuickBooks Desktop Payroll Enhanced or Assisted users can track the information they need throughout the year and generate a helpful report when your insurance auditor comes calling. With a little setup now, you can save yourself time later and feel more confident that the numbers you provide are accurate. Watch our video tutorial and read through the instructions below to learn how.

1. Turn On Workers’ Compensation Tracking

In QuickBooks Desktop Enterprise Solutions, go to Edit > Preferences > Benefits & HR > Company Preferences.

Select the option to track workers’ compensation insurance, then save your changes. This will activate the workers’ compensation features in your company file.

2. Enter Your Workers’ Compensation Codes

Next, go to Lists > Workers Comp List.

You can find the information you need on the declarations page of your workers’ compensation insurance policy.

Enter each:

• Classification code
• Description
• Rate per $100 of wages
• Policy effective date

Different types of work may have different codes and rates, so make sure each classification matches your insurance policy.

3. Add Your Experience Modification Factor

Your policy may also include an experience modification factor. This factor adjusts your premium based on your company’s claims and safety history. For example, a factor of 100% is considered standard. A lower percentage generally means a better safety record and a lower premium, while a higher percentage may increase your premium.

Enter the percentage and the policy effective date exactly as shown on your insurance documents.

4. Review the Payroll Item

Open your Payroll Item List and locate the workers’ compensation item. It should be set up as a company contribution and connected to the appropriate workers’ compensation payable and expense accounts.

Proper account mapping helps ensure the amounts appear correctly in your financial reports.

5. Assign Codes to Employees

Once your workers’ compensation codes are set up, the next step is to assign the appropriate code to each employee. Open the Employee Center, select an employee, and choose the classification that best reflects the work they perform. For example, a shop foreman will likely have a different code than someone working in an administrative role.

If an employee performs more than one type of work, you may need to use different workers’ compensation codes on individual earnings lines when running payroll. Taking the time to assign these codes carefully helps keep your reports accurate and can make the annual audit much easier.

6. Confirm Codes During Payroll

When you run payroll, review the workers’ compensation code assigned to each item in the Earnings section. QuickBooks will use the employee’s wages, classification rate, and experience modification factor to calculate the estimated premium. 

By reviewing the code during each payroll run, you can help prevent classification errors later.

7. Run Your Workers’ Compensation Report

When it is time for your annual audit, go to Reports > Employees & Payroll > Workers Comp Summary. Set the report dates to match your insurance policy period.

The report will show information such as:

• Covered wages
• Workers’ compensation rates
• Estimated premiums
• Experience modification adjustments

Closing Thoughts

Your auditor may also ask for supporting documents, such as quarterly payroll tax returns and state unemployment reports, so it helps to gather those in advance. Taking time to review your workers’ compensation report before the audit gives you a clearer idea of whether you may owe an additional premium or receive a refund—and it is always better to understand the numbers before the auditor presents them to you.

If you need help setting up workers’ compensation tracking or cleaning up your QuickBooks payroll records, reach out to New Business Directions to schedule a strategy session. It’s OK. We can help. Contact us here.

Growth is exciting. New customers, bigger opportunities, more programs, a bigger team, new moving parts — it is what most business owners and nonprofit leaders are working toward.

But growth also has a way of revealing what is no longer working behind the scenes.

For many organizations, the back office is the first place to feel the strain. The books still need to get done. Payroll still needs to run. Bills still need to be paid. Reports still need to be prepared. But suddenly, the systems that worked “well enough” a few years ago start creating more questions than answers.

If that sounds familiar, it does not mean you have failed. It may simply mean your organization has outgrown the way your accounting system is currently set up.

QuickBooks Is Powerful — But It Has to Be Set Up Properly

QuickBooks is a tremendous tool, and many businesses and nonprofits rely on it every day. Used well, it can help you track income and expenses, manage vendors and customers, run reports, monitor cash flow, and make better decisions.

But QuickBooks is not magic.

A lot of business owners start out doing the books themselves because they have to. In the early days, that may work. You enter transactions, reconcile accounts, send invoices, pay bills, and keep everything moving.

Then the organization grows.

You add employees, customers, programs, locations, vendors, or more complex reporting needs. Suddenly, the accounting system that once felt manageable starts to feel like one more thing standing between you and the information you need.

That is often when the late nights, weekend catch-up sessions, and “I know the information is in here somewhere” moments begin.

Is Your Accounting System Still Working for You?

You may not need to replace your software. But you may need to take a closer look at whether your accounting system is still supporting the way your organization operates today.

As your business or nonprofit grows, the back office often becomes harder to manage. You may be trying to handle the books yourself, using QuickBooks without knowing whether you are getting the most out of it, or wondering why your current system no longer gives you the answers you need.

When that happens, it is easy to assume the software is the problem. Sometimes, it is. A growing organization may eventually need a more robust system. But often, the issue is how the system was set up, how it is being used, or whether it still fits the business you have today.

Before making a major software change, it is worth asking whether the tools you already have could be working harder for you. With the right setup and workflow, your accounting system can give you clearer, more useful financial information — without requiring nights and weekends to get it.

Better Books Lead to Better Decisions

Clean, useful financial information gives you options.

It helps you see where money is coming from, where it is going, and what needs your attention. It helps you prepare for tax time, audits, grant reporting, pricing decisions, staffing plans, cash flow needs, and long-term growth.

This is the difference between having books that are technically “done” and having books that actually help you run the organization.

You Don’t Have to Figure It Out Alone

Most business owners and nonprofit leaders did not start their organizations because they wanted to spend their evenings sorting through accounting software. You have work you are meant to do, people you are meant to serve, and decisions that deserve accurate information.

A thoughtful review of your current accounting system can help identify what is working, what is not, and what needs to change. From there, you can make informed decisions about whether to clean up your existing system, optimize QuickBooks, improve your workflow, train your team, or consider a higher-level platform.

The goal is not software for the sake of software.

The goal is clarity.

If your back office has started to feel overwhelming, it may be time for a fresh look. Schedule a strategy session with New Business Directions, and let’s talk through how to build an accounting system that gives you the information you need — without working nights and weekends to get it.

It’s OK. We can help.

Last month, Britney and Rhonda traveled to San Antonio for the RightNOW conference sponsored by Rightworks, where we spent time learning, connecting, and exploring new ideas to better serve our customers.

They also went to a rodeo.

And while we are not claiming to be expert barrel racers, bull riders, or professional boot-scooters, we are comfortable saying this:

When it comes to helping businesses and nonprofits streamline the process, this is not our first rodeo.

One of the things we believe deeply is that strong businesses are built by people who keep learning. That applies to our customers, and it applies to us too. The world of accounting, technology, advisory services, reporting, and business planning keeps changing. So we keep showing up, asking better questions, learning new tools, and sharpening our skills.

Why? Because “good enough” does not create peace of mind.

Our goal is not just to keep your books accurate, although that matters. Our goal is to help you understand what your numbers are telling you, make smarter decisions, plan ahead, and feel more confident about where your business or organization is going.

 Attending the RightNOW conference gave us a fresh perspective on several things we care a lot about:

 Better systems. The right processes and technology can reduce stress, save time, and make financial information easier to use.

 Better conversations. Your numbers should not live in a dusty corner until tax time. They should help guide meaningful conversations about cash flow, profitability, growth, staffing, pricing, and sustainability.

Better decisions. When financial information is current, clear, and useful, leaders can stop guessing and start planning.

Better support. We are always looking for ways to improve how we serve you, communicate with you, and help you move from reactive to proactive.

And yes, the rodeo gave us a few business reminders too:

• Sometimes you have to hold on.
• Sometimes you need to change course.
• Timing is everything. 
• The person who looks calm in the saddle has done a lot of work behind the scenes.
• You need someone nearby who knows how to navigate challenges and keep things moving forward when the unexpected happens.

That is where we come in.

We continue to invest in our own learning because we want to bring more value to you. We want to help you streamline your processes, understand your financial story, create order out of chaos, and move forward with more peace of mind.

So yes, San Antonio gave us new ideas, helpful insights, and a few good laughs.

And the rodeo reminded us that experience matters.

Because when it comes to supporting businesses and nonprofits through the ups, downs, surprises, and occasional bucking bronco moments…

 This is not our first rodeo.