Trump Administration Brings Major Changes to Payroll Industry

The first year of President Donald Trump’s (R) second presidential administration saw the enactment of several pieces of federal legislation and executive orders, some of which affect the payroll industry currently and others that could make an impact in the future, a government affairs expert said March 16.

Important 2025 federal legislation for the payroll industry include the One Big Beautiful Bill Act and the Guiding and Establishing National Innovation for the US Stablecoins Act, or GENIUS Act for short, said Daniel Lewis, Esq., vice president of compliance programs and government affairs for ADP, LLC. Lewis also serves as the president of the National Payroll Reporting Consortium.

The biggest piece of federal legislation in 2025 was the OBBBA (Pub. L. No. 119-21), which contains the popular “no tax on tips” and “no tax on overtime” provisions, in addition to several other sections that apply to the payroll industry, he said. Contrary to the name of these provisions, however, tips and overtime amounts are still taxed; the law just create additional income tax deductions for certain taxpayers, he added.

The “no tax on tips” provision only applies to cash tips, which may be paid in the form of cash, checks, credit card charges, tip pools, mobile payment apps, or tokens, he said, but does not include service charges, mandatory payments, or cryptocurrency. Overtime is limited to the overtime premium required under the federal Fair Labor Standards Act, and no other forms of overtime are covered.

Workers that think they won’t pay any taxes on tips and overtime will likely be surprised when they file their tax returns, he said at PayrollOrg’s Capital Summit conference in Arlington, Virginia.

The provisions also require employers to annually report these amounts to employees so that they can claim the deduction on their personal tax returns, he said. Since these provisions were retroactive to Jan. 1, 2025, employers had to report these amounts at the end of last year, although the IRS provided some temporary penalty relief.

If an employer is unable to report tips to employees voluntarily, the employees can estimate their tips for the year using various tax forms, Lewis said. The Internal Revenue Service recently updated its Form W-4, Employee’s Withholding Certificate, and online tax withholding estimator to allow employees to estimate the amount of tips they expect to receive in a year and adjust their tax withholding accordingly, he added.

While the payroll industry is currently dealing with the effects of OBBBA, the GENIUS Act could impact the industry in the future, he said. The law created a regulatory system for the use of stablecoins, which is a digital asset that tries to keep its value by being tied to a stable asset, such as a country’s currency, Lewis explained. Although the potential changes to the payroll industry are still being studied, stablecoins could make cross-border payments easier and are a popular asset for many workers, he said.

“I can see a future where workers or employees want to get paid through stablecoin or cryptocurrency, or want to be able to change over their regular pay into stablecoin or crypto assets,” Lewis said. “We certainly want to have some influence in what those regulations would look like.”

Technological advances are also being made in the form of artificial intelligence, which some payroll professionals use. Executive Orders 14363 and 14365 aim to develop artificial intelligence and establish a national regulatory framework, Lewis said. These orders could unify state and federal artificial intelligence laws, which would ease the compliance burden for payroll professionals adopting artificial intelligence, he added.

We believe uniformity will be important as companies and payroll processors manage diverging state laws as they develop, Lewis said.