How Kansas Businesses Can Turn New Tax Benefits Into a Recruiting Edge

The One Big Beautiful Bill Act creates powerful employee benefits at no direct payroll cost to employers. For Kansas companies competing in a tight labor market, understanding and communicating these benefits can drive recruitment and retention.

The Overtime Tax Advantage for Your Employees

What your employees can claim:

• Deduct up to $12,500 of qualified overtime pay (single).
• Deduct up to $25,000 of qualified overtime pay (married filing jointly).
• This applies to the premium portion required by the FLSA (the “half” in time and a half). 
• Federal income tax deduction (Social Security and Medicare taxes still apply).
• Tips and overtime deductions phase out starting at $150,000 MAGI (individual) or $300,000 (joint filers). Married taxpayers must file jointly to be eligible.
• Available 2025-2028 only.

What this means for your business:

• Zero direct cost to you, the benefit goes entirely to employees
• Compelling edge in overtime-heavy roles.
• Strong retention and recruiting message for hard to fill shifts.

Industries that benefit most:

• Manufacturing and production
• Construction and trades
• Healthcare facilities
• Retail during peak seasons
• Any business with significant overtime needs

The Service Industry Game-Changer: No Tax on Qualified Tips

What your tipped employees gain:

• Deduct up to $25,000 annually in qualifying tips from federal taxable income.
• “Cash tips” include cash and charged (card) tips and pooled tips that are properly reported. (Mandatory service charges do not qualify.)
• FICA and state/local payroll taxes still apply.
• Tips must appear on required statements (e.g., Form W 2 box for tips, information returns for non employees) or be reported by the worker on Form 4137 (for unreported tips) per statute. 
• Available 2025-2028 only.

Business impact:

• Restaurant and hospitality positions become more attractive.
• No cost to your business, this is just a pure employee benefit.
• Competitive advantage over businesses that don’t communicate this benefit.
• Improved employee satisfaction and retention.

New Payroll Requirements: What You Need to Do

For 2025 only (transition year):

• No W 2/1099/withholding changes for TY 2025. Keep using current forms and tables. 
• You may approximate separate accounting of cash tips and qualified overtime using a reasonable method specified by forthcoming IRS guidance. Start capturing good data now.

Starting with 2026 filings:

• W2s must include total cash tips (with occupation) and total qualified overtime in new line items.
• Expect payroll system updates and new procedures.

Action steps:

1. Confirm your payroll system can track qualified overtime separately and capture cash/charged tips accurately.
2. Coordinate with your payroll provider to map new 2026 W2 fields.
3. Train managers on what counts (voluntary tips vs. service charges).
4. Communicate the benefit to current staff and in recruiting.

Trump Account Employer Contributions

Beginning no earlier than July 4, 2026 (12 months after enactment), employers can contribute up to $2,500 per employee per year to a Trump Account for the employee or a dependent, excluded from the employee’s taxable income. Consider this a distinctive, family friendly benefit alongside 401(k) matching or HSAs. New employee benefit opportunity:

• Contribute up to $2,500 annually to each employee’s child’s Trump Account.
• Tax-free to the employee, meaning they don’t pay income tax on your contribution.
• Unique benefit that sets you apart from competitors.
• Long-term employee loyalty builder.

Strategic considerations:

• Available starting July 4, 2026 when Trump Accounts launch.
• Especially valuable for employees with young children.
• Cost-effective benefit compared to traditional benefits.
• Appeals to family-oriented employees.

Competitive Positioning Strategies

• Against larger competitors: Emphasize your hands on benefit education: “We help every team member maximize new federal tax benefits.”
• Against similar sized firms: Win on speed and clarity—roll out communications and paycheck inserts first.
• In job postings: Quantify the value (“Overtime & tips tax deductions worth thousands annually depending on hours and role.”). 

Industry-Specific Applications

• Manufacturing and Construction: Publish simple charts showing typical annual overtime savings at common hour bands. Train supervisors to explain the overtime deduction when offering overtime.
• Restaurants and Hospitality / Salons and Spas: Train managers on tip reporting; highlight “card tips count” (service charges don’t). Use in offer letters and onboarding.
• Healthcare and Field Services: Where employees earn both overtime and tips (like some service roles), show the combined impact.

Implementation Timeline

Now through 2025 (transition year):

• Keep using 2025 forms; build internal tracking/estimation methods; prep staff communications; update job postings.

2026–2028:

• Switch to new W 2 reporting; continue employee education; consider adding Trump Account contributions to your benefits mix; plan for sunset after 2028 unless extended.

Kansas Note Kansas personal income tax uses federal AGI as the starting point, so federal above the line deductions (like these) generally flow through to Kansas unless the state enacts a decoupling change. Monitor Kansas DOR for any updates for 2025–2028.

Why This Matters Now

• Temporary opportunity: These benefits expire after 2028, creating a four-year competitive window.
• Tight labor market: Kansas businesses are competing for talent and communicating about these benefits can provide real differentiation.
• Zero cost advantage: Unlike traditional benefits, these tax advantages cost you nothing but provide substantial employee value.
• First-mover advantage: Businesses that communicate these benefits early gain recruitment and retention advantages.

Ready to turn new tax laws into competitive advantages? Contact our team to develop employee communication strategies and ensure your payroll systems are ready to capture these benefits for your team.