If you have employees on payroll, there’s a big federal tax law that just passed—and it could impact the way you manage payroll, benefits, and year-end reporting.
On July 4, 2025, the federal government signed H.R. 1 into law. It includes several updates that affect employers and employees starting this year and next. But here’s the issue: most payroll providers won’t say a word about it—or they’ll leave it up to you to figure out what to do.
At Baron Payroll, we believe you deserve a payroll provider that keeps you in the loop, protects your business, and helps you stay compliant without lifting a finger.
Let’s break down what you need to know.
Here are the main tax and payroll-related provisions in the new law:
Employees who receive tip income can now deduct up to $25,000 per year. This deduction phases out once adjusted gross income exceeds $150,000 (individual) or $300,000 (joint).
If your business includes tipped workers, it’s essential that your payroll system accurately tracks and separates those tips—otherwise your employees may miss out, and your reports may not hold up under scrutiny.
The law allows employees to deduct the premium portion of their overtime (the “time-and-a-half” part). The deduction is capped at $12,500 per individual, or $25,000 for joint filers.
This means your payroll system needs to properly identify and record the premium portion of overtime—not just total hours. If your provider isn’t doing this right, your team could be in for a frustrating tax season.
Starting in 2026, FSA contribution limits are increasing:
If you offer an FSA, your plan documents and open enrollment materials will need to reflect these changes.
The IRS is raising the threshold for 1099-MISC and 1099-NEC forms:
Important: This change applies to payments made after December 31, 2025—so you’ll need to adjust your year-end tracking.
Here’s the big takeaway: Most of these new deductions depend on having the right payroll data tracked accurately throughout the year.
That means:
If your payroll provider isn’t talking to you about this—that’s a problem.
At Baron Payroll, we don’t expect you to stay on top of every federal update—we handle that for you.
Here’s how we’re helping our clients stay ahead of H.R. 1:
And most importantly, we’re always here when you call—with real support from people who understand your business.
At Baron Payroll, we combine hands-on support with smart technology—so your payroll runs smoothly, your records stay accurate, and you never have to worry about compliance surprises.
Use our Instant Price Calculator to get your detailed price—no sales call required.
If you found this article helpful, here are some others you might like: