Latest From the States: ‘The Bill’, EWA, and New Exposure Vectors

Analysis by Michael Baer 

The Republican Senate leadership has tweaked proposed changes that would create the tax-free status of tips and overtime pay proposed under the House-passed “Big, Beautiful Bill.” The new provisions, approved by the Senate Finance Committee but not yet voted on by the full Senate, would cap the maximum federal income tax-free amounts available to those receiving overtime pay at $12,500 annually and those receiving qualified tips at $25,000 a year. 

On the earned wage access (EWA) front, Indiana and Maryland passed legislation in June that regulates EWA, also known as on-demand pay, bringing the total number of states formally addressing the practice to 11. 

For those in HR and people operations in the U.S., many are scrambling to avoid legal battles with the federal government by quickly adjusting policies and practices regarding the hiring and development of minorities and women.  

Update on the ‘Big, Beautiful Bill’    

When the House passed H.R. 1 on May 22, the legislation moved to the Senate, where some members of the Republican Party expressed their differences with some key parts of the bill. The legislation is a product of the Republicans, who hold a narrow majority in both legislative chambers. 

Senate Republicans in the Finance Committee have agreed on adjustments to the House version, and these will be debated before the full Senate votes on the legislation. Should the Senate approve the Senate Finance language and other parts, the bill goes to the House for either reconciliation with the Senate version or a vote to approve the Senate version.  

Congressional leaders and President Trump want this bill to pass both chambers of Congress by July 4. 

While the Senate Finance Committee Republicans generally follow the House version’s approach to excluding tips and overtime pay from federal income tax, the Senate tweaked the language for both provisions to include: 

• an annual ceiling on tips and overtime pay that can be tax-free ($12,500 for individuals for overtime pay and $25,000 for individuals receiving qualified tips), 

• a change in the overall income threshold to qualify for the exclusions to include a gradual phase-out starting at $150,000 a year, 

• transition language to allow employers more flexibility for reporting this year’s tip and overtime amounts that could be excluded, and  

• specific provisions outlining the reporting of amounts to the government and the receiver of tips or overtime pay. 

The current Senate Finance language keeps the House approach to the effective dates (Jan 1, 2025 through Dec. 31, 2028), the mention of the use of Form W-2 for reporting, the requirement to list qualified positions for the tip exclusion within 90 days of passage, and the instructions to the Treasury Secretary to modify tax calculation tables to account for these exclusions. 

Other key provisions of both versions of the bill that would impact payroll include retaining the current individual income tax rates, the permanent removal of deductions for non-federal government employee moving expenses, making permanent the paid leave tax credit, and increasing the $600 filing threshold for 1099-Misc; 1099-NEC to $2,000 with an inflation adjustment clause. Click here for the Senate Finance Committee’s version of the tax provisions in H.R. 1. 

More States Weigh In on Earned Wage Access 

In May, Indiana and Maryland became the latest states to recognize and categorize on-demand pay programs—commonly called earned wage access, or EWA.  

Maryland’s bill (HB 1294), effective Oct. 1, 2025, categorizes EWA programs as loans but excludes them from many of the onerous requirements that apply to lenders of other types of credit in the state.  

There are added provisions, however, that limit the amount EWA providers in Maryland can charge employees in fulfilling expedited, or near-real-time, requests for money based on accumulated earnings, and any requests for tips on such services. The law limits fees to $5 for any “advance or proceeds equal to or less than $75,” or to $7.50 for any amount in excess of $75. 

Licensing, registration, and annual reporting are to be required. 

Indiana adopted its own version of EWA governance (HB 1125), which sets fee limitations to the amount allowed for check cashing operations, which is $5 or up to 5% of the amount paid out. Licensing, registration and reporting requirements are included in this new law, which is effective Jan. 1, 2026. 

Reworking Employment Recruitment and Development Programs 

Over many years, U.S. employers have developed programs to increase diversity, equity, and inclusion in their workforces, only to now have these initiatives seen as liabilities overall, especially for federal contractors, tax-exempt organizations (like schools and charities), and high-profile employers—some of whom are being sued. 

From the start of the latest Trump Administration, there has been an emphasis to remove or limit affirmative action and diversity programs.  

This has manifested itself across the country in several ways: 

• Private companies that have federal contracts may lose continued business from the government if they are determined to not follow the new agenda. Reviews are underway. 

• Employers that are designated as exempt from corporate taxation (so-called tax-exempts) could face a reappraisal of their status by the Internal Revenue Service if they continue certain programs that are deemed not in accordance with the administration.  

• Employers are being sued for developing diversity, equality, and inclusion programs that cross the line for the government as being discriminatory in their hiring and limiting promotional opportunities for non-minorities.  

In May, the Justice Department announced the creation of a Civil Rights Fraud Initiative that will pursue what it terms as divisive DEI policies.  

Payroll professionals have seen those involved in DEI initiatives let go or reassigned, and parts of executive pay based on success with DEI eliminated. However, several employers have publicly chosen to keep their programs in place, despite the attempt to force change. 

One more issue for payroll concerns illegal aliens. With the highly-publicized deportation program underway, employers are reexamining their foreign worker population to ensure they are in the country legally and eligible to work. Also, those being deported still need to be paid for work performed, and this may complicate wage payment processes. 

Analysis by Michael Baer 

The Republican Senate leadership has tweaked proposed changes that would create the tax-free status of tips and overtime pay proposed under the House-passed “Big, Beautiful Bill.” The new provisions, approved by the Senate Finance Committee but not yet voted on by the full Senate, would cap the maximum federal income tax-free amounts available to those receiving overtime pay at $12,500 annually and those receiving qualified tips at $25,000 a year. 

On the earned wage access (EWA) front, Indiana and Maryland passed legislation in June that regulates EWA, also known as on-demand pay, bringing the total number of states formally addressing the practice to 11. 

For those in HR and people operations in the U.S., many are scrambling to avoid legal battles with the federal government by quickly adjusting policies and practices regarding the hiring and development of minorities and women.  

Update on the ‘Big, Beautiful Bill’    

When the House passed H.R. 1 on May 22, the legislation moved to the Senate, where some members of the Republican Party expressed their differences with some key parts of the bill. The legislation is a product of the Republicans, who hold a narrow majority in both legislative chambers. 

Senate Republicans in the Finance Committee have agreed on adjustments to the House version, and these will be debated before the full Senate votes on the legislation. Should the Senate approve the Senate Finance language and other parts, the bill goes to the House for either reconciliation with the Senate version or a vote to approve the Senate version.  

Congressional leaders and President Trump want this bill to pass both chambers of Congress by July 4. 

While the Senate Finance Committee Republicans generally follow the House version’s approach to excluding tips and overtime pay from federal income tax, the Senate tweaked the language for both provisions to include: 

• an annual ceiling on tips and overtime pay that can be tax-free ($12,500 for individuals for overtime pay and $25,000 for individuals receiving qualified tips), 

• a change in the overall income threshold to qualify for the exclusions to include a gradual phase-out starting at $150,000 a year, 

• transition language to allow employers more flexibility for reporting this year’s tip and overtime amounts that could be excluded, and  

• specific provisions outlining the reporting of amounts to the government and the receiver of tips or overtime pay. 

The current Senate Finance language keeps the House approach to the effective dates (Jan 1, 2025 through Dec. 31, 2028), the mention of the use of Form W-2 for reporting, the requirement to list qualified positions for the tip exclusion within 90 days of passage, and the instructions to the Treasury Secretary to modify tax calculation tables to account for these exclusions. 

Other key provisions of both versions of the bill that would impact payroll include retaining the current individual income tax rates, the permanent removal of deductions for non-federal government employee moving expenses, making permanent the paid leave tax credit, and increasing the $600 filing threshold for 1099-Misc; 1099-NEC to $2,000 with an inflation adjustment clause. Click here for the Senate Finance Committee’s version of the tax provisions in H.R. 1. 

More States Weigh In on Earned Wage Access 

In May, Indiana and Maryland became the latest states to recognize and categorize on-demand pay programs—commonly called earned wage access, or EWA.  

Maryland’s bill (HB 1294), effective Oct. 1, 2025, categorizes EWA programs as loans but excludes them from many of the onerous requirements that apply to lenders of other types of credit in the state.  

There are added provisions, however, that limit the amount EWA providers in Maryland can charge employees in fulfilling expedited, or near-real-time, requests for money based on accumulated earnings, and any requests for tips on such services. The law limits fees to $5 for any “advance or proceeds equal to or less than $75,” or to $7.50 for any amount in excess of $75. 

Licensing, registration, and annual reporting are to be required. 

Indiana adopted its own version of EWA governance (HB 1125), which sets fee limitations to the amount allowed for check cashing operations, which is $5 or up to 5% of the amount paid out. Licensing, registration and reporting requirements are included in this new law, which is effective Jan. 1, 2026. 

Reworking Employment Recruitment and Development Programs 

Over many years, U.S. employers have developed programs to increase diversity, equity, and inclusion in their workforces, only to now have these initiatives seen as liabilities overall, especially for federal contractors, tax-exempt organizations (like schools and charities), and high-profile employers—some of whom are being sued. 

From the start of the latest Trump Administration, there has been an emphasis to remove or limit affirmative action and diversity programs.  

This has manifested itself across the country in several ways: 

• Private companies that have federal contracts may lose continued business from the government if they are determined to not follow the new agenda. Reviews are underway. 

• Employers that are designated as exempt from corporate taxation (so-called tax-exempts) could face a reappraisal of their status by the Internal Revenue Service if they continue certain programs that are deemed not in accordance with the administration.  

• Employers are being sued for developing diversity, equality, and inclusion programs that cross the line for the government as being discriminatory in their hiring and limiting promotional opportunities for non-minorities.  

In May, the Justice Department announced the creation of a Civil Rights Fraud Initiative that will pursue what it terms as divisive DEI policies.  

Payroll professionals have seen those involved in DEI initiatives let go or reassigned, and parts of executive pay based on success with DEI eliminated. However, several employers have publicly chosen to keep their programs in place, despite the attempt to force change. 

One more issue for payroll concerns illegal aliens. With the highly-publicized deportation program underway, employers are reexamining their foreign worker population to ensure they are in the country legally and eligible to work. Also, those being deported still need to be paid for work performed, and this may complicate wage payment processes.