Employment Tax

United States | Employment Tax | House passes H.R.1 — One, Big, Beautiful Bill Act; Bill heads to the Senate for consideration

Summary

On May 22, 2025, the House passed H.R.1 — One, Big, Beautiful Bill Act (the “Bill”) which provides amendments and additions to several areas of the tax law, including changes that affect employers with respect to payroll taxes. Key provisions include amendments to COVID-related Employee Retention Tax Credit (“ERTC”) penalty provisions and statute of limitations, the inclusion of a deduction for qualified tips and qualified overtime that impacts the employer withholding and information reporting responsibilities with respect to such wages, the permanent inclusion of certain provisions that were set to expire under the Tax Cuts and Jobs Act (“TCJA”), and changes to certain information reporting thresholds.

Note, the provisions in H.R.1 are not final and may change upon Senate review.

The detail

Key provisions affecting employment taxes

COVID-related ETRC

H.R.1 provides several changes to COVID-ERTC penalty provisions, including increasing the assessable penalty on COVID-related ERTC promoters for aiding and abetting understatements of tax liability and extending the statute of limitations in certain circumstances.

• COVID-ERTC promoters subject to a penalty under Internal Revenue Code section 6701(a) with respect to any COVID-ERTC document (e.g. returns) will be subject to an increased penalty, in an amount the greater of (1) $200,000 ($10,000 in the case of a natural person), or (2) 75% of the gross income derived (or to be derived) by the promoter with respect to such COVID-ERTC document
• Failure to comply with due diligence requirements with respect to determining the eligibility for or the amount of any COVID-related ERTC must pay a penalty of $1,000 for each failure
• Extension of statute of limitations to six (6) years after the latest of (1) original return which includes the calendar quarter the credit is filed for, (2) the date the return is treated as filed under Internal Revenue Code section 6501(b)(2), or (3) the date on which the claim for credit or refund with respect to such credit is made
• Amendments to the statute of limitations would apply to assessments made after the date of enactment

TCJA provisions

Certain TCJA amendments are set to expire at the end of 2025. H.R.1 (as currently written) would extend or permanently implement the following employment tax provisions:

• Permanently terminate the exclusion for Qualified Bicycle Commuting Reimbursements provided under Internal Revenue Code section 132(f)
• Permanently terminate the exclusion for Qualified Moving Expense Reimbursements provided under Internal Revenue Code section 132(g), and the corresponding deduction under Internal Revenue Code section 217

Increase in certain information reporting thresholds

Applicable to payments made after December 31, 2025, information reporting threshold for payments required to be reported per Internal Revenue Code sections 6041(a) and 6041A(a)(2), and reportable payments for backup withholding under Internal Revenue Code section 3406(b)(6), increases from $600 to $2,000, with inflation adjustments for calendar years after 2026

Qualified overtime and tips

H.R.1 provides for a deduction for qualified tips received by an individual (employee or nonemployee), if certain requirements are met. For purposes of this section, a qualified tip is any cash tip received by an individual in an occupation which traditionally and customarily received tips on or before December 31, 2024, with certain exclusions.

• Qualified tips must be reported on a Form W-2 (employee) or Form 1099 (nonemployee). Additional information reporting responsibilities for qualified tips may be applicable (e.g. separate accounting of qualified tips)
• Federal income tax withholding tables and procedures under Internal Revenue Code section 3402(a) will be modified to take into account this deduction
• Effective for taxable years beginning after December 31, 2024, and through December 31, 2028

H.R.1 provides a similar deduction for qualified overtime compensation (limited to employees), with certain exclusions.

• Total amount of qualified overtime compensation must be reported on Form W-2
• Federal income tax withholding tables and procedures under Internal Revenue Code section 3402(a) will be modified to take into account this deduction
• Effective for taxable years beginning after December 31, 2024, and through December 31, 2028

How we can help

Vialto can assist with you understanding the requirements and implementing changes, should H.R.1 become law.

Contact us

For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:

Tina Schrob 
Partner

Priya Schwartzburt  
Director

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