server can handle 1-3 players as expected when logging in via WAN connection (port forwarded) but will lag more than expected when a single LAN player is added. single lan player can trigger "Can't keep up! Is the server overloaded? Running Xms or Y ticks behind" more frequently than 3 players playing remotely.
when this happens, remote players are affected by lag the most while lan players have only slightly noticeable issues. lan players would have slight rubber banding/food taking longer to eat/etc while remote players would have to wait triple the time for a block break to be registered by the server.
a single lan player playing normally would max one thread of cpu (which thread it was would alternate) regularly
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I tried a workaround that seems to be effective. Connect to the outside IP address on your LAN clients instead of using the internal IP, and it seems to fool MC into thinking that the LAN clients are actually WAN clients.
i.e. if your internal server is 192.168.0.1 and you have port forwarding on your router, and your router external IP is 66.222.111.123, add a new server using the external 66.222.111.123:25565 address on your internal clients.
This workaround works on a Apple AirPort Extreme but other routers may handle this differently.