TCJA Expiration Leads Hot Payroll Issues in 2025

The looming expiration of the Tax Cuts and Jobs Act at the end of 2025 is one of a number of issues at all levels of government that should have payroll professionals’ attention, a practitioner said March 17.

Bruce Phipps. CPP, a senior principal product manager at Oracle, mentioned in particular the increased standard deductions and decreased corporate income tax rate as changes that would be reversed if the TCJA expires. He told the audience at PayrollOrg’s Capital Summit in Arlington, Va., that even though most of them are not involved in filing a corporate income tax return, they may have to provide data for it.

Caps on deductions for mortgage interest, charitable donations, and state and local taxes would also expire with the TCJA, as well as an increased child tax credit, Phipps said.

Phipps said the primary questions about an extension, besides if it is going to happen, are whether only parts of the TCJA will be extended, for how long, and how states will be affected if it expires.

“We don’t even know at this point how this is going to affect each individual state,” Phipps said of expiration, adding that he expects states would probably not move quickly on adjusting to the federal changes. “Think of the upheaval of what we may have to do, or not do, as a result of this,” he said.

Phipps also addressed federal-level proposals to exempt overtime and tips from federal income tax, making reference to Alabama payroll professionals’ experience with implementing that state’s exemption of overtime from income tax.

“If folks in Alabama were challenged to get it excluded, think about it from a federal perspective,” Phipps said. He added, “I don’t even want to talk about tips” referencing that possible exclusion.

Figuring out how to implement the exclusions in a payroll system and report them on payslips and Forms W-2 would be complex, Phipps said. Many of the states with paid family leave programs have not provided guidance on how to report contributions on Forms W-2, he said.

Phipps, who serves on PayrollOrg’s government relations subcommittee on state and local topics, also said that the subcommittee had received a number of questions from members about Seattle’s additional payroll expense tax, which was approved by voters Feb. 11 and is in addition to the city’s existing payroll expense tax. He added that the subcommittee would be working with PayrollOrg’s government relations team to reach out to the city and that members should continue sending in their questions.