obbba - Linkenheimer LLP CPAs & Advisors

Key Employee Payroll and Tax Changes for 2026 (OBBBA)

The Overtime and Benefit Balance Act (OBBBA) represents one of the most significant payroll and tax law changes for employees in recent years. Whether you earn overtime, receive tips, or use transit benefits, these updates could put real money back in your pocket—or at least reduce what you owe come tax time. We’ve distilled the key provisions below so you know what to expect and how to plan. As always, the details matter, so reach out if you’d like to discuss how these changes apply to your specific situation.

Overtime Deduction: Employees may deduct up to $12,500 ($25,000 if married filing jointly) of the “half” portion of FLSA overtime premium pay on their personal tax return (Form 1040, Schedule 1). This deduction is subject to income phase-outs and does not reduce Social Security or Medicare (FICA) taxes withheld from your paycheck. The deduction is taken at year-end and reduces your taxable income for federal income tax purposes only.
Tip Income Deduction: Employees in IRS-listed tipped occupations may deduct up to […]

By Linkenheimer LLP|2026-01-16T18:49:18+00:00January 16th, 2026|employee, News, payroll|0 Comments

New Law Eases the Limitation on Business Interest Expense Deductions for 2025 and Beyond

Interest paid or accrued by a business is generally deductible for federal tax purposes. But limitations apply. Now some changes under the One Big Beautiful Bill Act (OBBBA) will result in larger deductions for affected taxpayers.

Limitation basics

The deduction for business interest expense for a particular tax year is generally limited to 30% of the taxpayer’s adjusted taxable income (ATI). That taxpayer could be you or your business entity, such as a partnership, limited liability company (LLC), or C or S corporation. Any business interest expense that’s disallowed by this limitation is carried forward to future tax years.

Business interest expense means interest on debt that’s allocable to a business. For partnerships, LLCs that are treated as partnerships for tax purposes, and S corporations, the limitation on the business interest expense deduction is applied first at the entity level and then at the owner level under complex rules.

The limitation on the business interest expense deduction is applied before applying the passive activity loss (PAL) limitation rules, the at-risk limitation rules and the excess business loss disallowance rules. For pass-through entities, those rules are applied at the owner level. But the limitation on the business interest expense […]

By Linkenheimer LLP|2025-12-10T17:26:18+00:00December 10th, 2025|business, deduction, deductions, New Tax Laws|0 Comments

New Itemized Deduction Limitation Will Affect High-Income Individuals Next Year

Beginning in 2026, taxpayers in the top federal income tax bracket will see their itemized deductions reduced. If you’re at risk, there are steps you can take before the end of 2025 to help mitigate the negative impact.

The new limitation up close

Before the Tax Cuts and Jobs Act (TCJA), certain itemized deductions of high-income taxpayers were reduced, generally by 3% of the amount by which their adjusted gross income exceeded a specific threshold. For 2018 through 2025, the TCJA eliminated that limitation. The One Big Beautiful Bill Act (OBBBA) makes that elimination permanent, but it puts in place a new limitation for taxpayers in the 37% federal income tax bracket.

Specifically, for 2026 and beyond, allowable itemized deductions for individuals in the 37% bracket will be reduced by the lesser of: 1) 2/37 times the amount of otherwise allowable itemized deductions or 2) 2/37 times the amount of taxable income (before considering those deductions) in excess of the applicable threshold for the 37% tax bracket.

For 2026, the 37% bracket starts when taxable income exceeds $640,600 for singles and heads of households, $768,700 for married couples filing jointly, and $384,350 for […]

By Linkenheimer LLP|2025-11-18T16:22:45+00:00November 18th, 2025|deduction, deductions, New Tax Laws|0 Comments

Review Your Business Expenses Before Year End

Now is a good time to review your business’s expenses for deductibility. Accelerating deductible expenses into this year generally will reduce 2025 taxes and might even provide permanent tax savings. Also consider the impact of the One Big Beautiful Bill Act (OBBBA). It makes permanent or revises some Tax Cuts and Jobs Act (TCJA) provisions that reduced or eliminated certain deductions.

“Ordinary and necessary” business expenses

There’s no master list of deductible business expenses in the Internal Revenue Code (IRC). Although some deductions are expressly authorized or excluded, most are governed by the general rule of IRC Section 162, which permits businesses to deduct their “ordinary and necessary” expenses.

An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your business. (It doesn’t have to be indispensable.) Even if an expense is ordinary and necessary, it may not be deductible if the IRS considers it lavish or extravagant.

OBBBA and TCJA changes

Here are some types of business expenses whose deductibility is affected by OBBBA or TCJA provisions:

Entertainment. The TCJA eliminated most deductions for entertainment expenses beginning in 2018. However, entertainment expenses […]

By Linkenheimer LLP|2025-10-27T19:31:54+00:00October 27th, 2025|business, expensing, New Tax Laws, tax planning, year-end|0 Comments

Payroll Tax Implications of New Tax Breaks on Tips and Overtime

Before the One Big Beautiful Bill Act (OBBBA), tip income and overtime income were fully taxable for federal income tax purposes. The new law changes that.

Tip income deduction

For 2025–2028, the OBBBA creates a new temporary federal income tax deduction that can offset up to $25,000 of annual qualified tip income. It begins to phase out when modified adjusted gross income (MAGI) is more than $150,000 ($300,000 for married joint filers).

The deduction is available if a worker receives qualified tips in an occupation that’s designated by the IRS as one where tips are customary. However, the U.S. Treasury Department recently released a draft list of occupations it proposes to receive the tax break and there are some surprising jobs on the list, including plumbers, electricians, home heating / air conditioning mechanics and installers, digital content creators, and home movers.

Employees and self-employed individuals who work in certain trades or businesses are ineligible for the tip deduction. These include health, law, accounting, financial services, investment management and more.

Qualified tips can be paid by customers in cash or with credit cards or given to workers through tip-sharing arrangements. The deduction can be claimed […]

By Linkenheimer LLP|2025-09-09T16:10:50+00:00September 9th, 2025|1099, deduction, New Tax Laws|0 Comments