SPECIAL NEWSLETTER

TO OUR

BUSINESS CLIENTS

Important Update: Michigan Sick Time Laws Have Changed

Although we have been working with our own payroll clients, we want to make all our business clients aware of significant changes to Michigan’s sick time laws that may affect your business and your employees.

What’s New?

Michigan’s Earned Sick Time Act (ESTA) took effect on February 21, 2025, replacing the previous Paid Medical Leave Act. All Michigan employers with at least one employee are now required to provide paid sick time. Small businesses (those with 10 or fewer employees) were required to comply by October 1, 2025.

Key Provisions:

•       Who is Covered: All full-time and part-time employees working in Michigan, except U.S. government employees.

•       Accrual: Employees earn one hour of paid sick time for every 30 hours worked.

•       Annual Caps: Most employers must provide up to 72 hours of paid sick time per year; small businesses must provide up to 40 hours.

•       Frontloading Option: Employers may choose to provide the full annual amount of sick time at the start of the year.

•       Waiting Period: New employees may be required to wait up to 120 days before using accrued sick time (if using the accrual method).

•       Permitted Uses: Sick time can be used for the employee’s or a family member’s illness, preventative care, issues related to domestic violence or sexual assault, school meetings, and public health emergencies.

•       Notice & Documentation: Employers may require up to seven days’ advance notice for foreseeable leave and reasonable documentation for absences longer than three days.

•       Recordkeeping: Employers must keep records of hours worked and sick time taken for at least three years and display a workplace poster outlining employee rights.

•       Penalties: Noncompliance can result in administrative fines.



We recommend reviewing your current sick time policies and updating them to ensure compliance with the new law. If you have questions about how these changes affect your business, please contact our office.

New “No Tax on Tips” Rules-

 What Employers Need to Know

The One Big Beautiful Bill Act (OBBBA), enacted July 4, 2025, introduces a temporary federal income tax deduction for qualified tips received by employees in certain occupations where tipping was customary before 2025. This deduction applies for tax years 2025 through 2028, is capped at $25,000 per year, and phases out for higher-income individuals. The IRS and Treasury will publish the official list of qualifying occupations, with a preliminary list already available and the final list is due soon. Notably, health, performing arts, and athletics occupations are excluded, and only voluntary, properly reported tips qualify.

For employers, new reporting requirements begin with the 2026 tax year. Forms W-2 and W-2c will include new boxes for reporting total qualified tips and the occupation code for tipped employees. For 2025, employers can satisfy the voluntary reporting requirements for qualified tips under the new OBBBA rules by taking the following steps:

1) W-2 Reporting (Box 14): Use Box 14 of the 2025 Form W-2 to report the total amount of qualified tips received by each employee. Include a clear description such as “Qualified Tips (OBBBA).” If possible, also note the employee’s occupation, especially if it is on the IRS’s preliminary list of qualifying occupations.

2) Supplemental Year-End Statement: If Box 14 is not used, or for added clarity, provide a separate year-end statement to each employee. This statement should show:

• The total qualified tips received in 2025.
• The employee’s occupation as it relates to the IRS’s preliminary list.
• A note explaining that this information is to help the employee claim the OBBBA deduction on their 2025 tax return.

3) Payroll Records and Pay Stubs: Continue to provide pay stubs or payroll summaries that clearly show reported tip income for each pay period. Maintain detailed payroll records of all reported tips, including dates, amounts, and occupation.

4) Employee Communication: Inform employees that tips are still subject to withholding and FICA for 2025, but they may be able to deduct up to $25,000 in qualified tips if they are in a qualifying occupation. Let them know the information provided will help them claim the deduction, and that more IRS guidance is expected for 2026.

Employers making good faith efforts to comply will have transition relief for 2025, and there are no penalties for reasonable omissions or errors in reporting this year.

Action steps for employers:

• Review and update payroll systems to track tip income and employee occupations.
• Maintain detailed records to support future reporting.
• Monitor IRS guidance for updates, including the final list of qualifying occupations and detailed compliance rules.



These changes are designed to provide tax relief to tipped employees while ensuring accurate employer reporting. Stay tuned for further IRS guidance as implementation details are finalized.

The New “No Tax on Overtime” Rule—

What Employers Need to Know

A new federal rule, effective for tax years 2025 through 2028, allows employees to deduct up to $12,500 per tax filer of the FLSA-mandated overtime premium from their federal taxable income. This deduction applies only to the 50% premium portion of overtime pay required by the Fair Labor Standards Act (FLSA)—not to the entire overtime wage. The deduction phases out for higher-income employees, starting at $150,000 of modified adjusted gross income for single filers ($300,000 for joint filers).

Key Points for Employers:

• No Employer Tax Benefit: The deduction is for employees only; employers do not receive a tax deduction or credit for paying overtime under this rule.
• Reporting Requirements: Employers must separately report the total amount of qualified overtime compensation on employees’ Forms W-2 (and 1099s for non-employees). For 2025, any reasonable method may be used to estimate and report these amounts, but stricter IRS-specified methods will apply for 2026 and beyond. The IRS will update the 2026 W-2/1099 forms to include new reporting fields.
• Payroll and Withholding: Employers must continue to withhold and report federal income and payroll taxes on all overtime pay as usual. The deduction is claimed by employees on their individual tax returns and does not affect payroll tax treatment.
• Tracking Overtime: Begin tracking the FLSA overtime premium separately from regular wages and other types of premium pay. This will be essential for compliance with new reporting requirements.
• Transition Year Flexibility: For 2025, reasonable estimation methods are permitted, but more detailed tracking will be required for 2026 and beyond.
• Employee Communication: Proactively inform employees that overtime pay is still subject to withholding and reporting, and that the new rule allows for a deduction on their tax return, not an exemption from payroll taxes.

Action Steps:

• Update payroll systems to track FLSA overtime premiums separately.
• Prepare to use reasonable estimation for 2025, and plan for new W-2/1099 reporting codes in 2026.
• Communicate with employees about the nature of the deduction and upcoming changes.

Meals & Entertainment Deductions:

What’s Deductible and What’s Changing?

Important Reminders for Businesses

•  Starting in 2026, no deduction is allowed for employer-operated eating facilities or meals provided for the employer’s convenience, except for certain industries.

• Segregate meal expenses from entertainment expenses in your records—only meals that meet the requirements are deductible, and entertainment is generally not.

• Review your policies and accounting systems now to prepare for these changes and ensure you’re maximizing allowable deductions.

Upcoming Due Dates