PAYO Letter Can Help Employees Update Withholding for OBBBA Changes

PayrollOrg (PAYO) created a letter employers can give employees to help them update their income tax withholding to account for changes due to Public Law 119-21, known as the One Big Beautiful Bill Act (OBBBA).

OBBBA contains several new or enhanced deductions that individuals can claim, and many of these deductions are available beginning in 2025, including:

• New income tax deductions for qualified overtime compensation and tips and qualified passenger vehicle loan interest;
• An enhanced deduction for seniors;
• An increase in the standard deduction and the child tax credit; and
• An increase in the limit on the itemized deduction for state and local taxes.

Employees who want to account for the OBBBA deductions in the income tax withheld from the remainder of their paychecks in 2025 must submit a new 2025 Form W-4, Employee’s Withholding Certificate.

Sample Letter

To make it easier for employers to inform employees about the new deductions, PAYO created a sample letter that can be given to employees. The letter provides basic information about the steps employees will take to update their withholding and can be customized for your organization.

The letter is available to download on the OBBBA Payroll Hot Topics webpage. A PDF and a Word version are both available.

To learn more about federal and state laws, regulations, and information to keep your company's payroll operations in compliance, check out Payroll Source Plus!

Rayna Alexander, Esq., is Editor of Payroll Information Resources for PayrollOrg.