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The One Big Beautiful Bill (OBBB) Act

Navigating the One Big Beautiful Bill Act: Key Payroll, Benefits, and Tax Changes for Your Business

The "One Big Beautiful Bill Act" is a new law that could change how your company handles payroll, benefits, and tax reporting. This article explains the key aspects of the law that might affect your business.

Key Changes from the One Big Beautiful Bill (OBBBA or OB3) Act

Last updated Sep 15, 2025.
  • Tip Income Exemption
    • From January 1, 2025, to December 31, 2028, employees can exclude up to $25,000 in tips from income tax (FICA taxes still apply).
    • Tips must be reported separately in payroll.
    • Your payroll system will track and report tips:
      • Guidance for 2025 is pending from the IRS.
      • Starting in 2026, tips will be reported on Form W-2, Box 12.
      • Your payroll system will also begin collecting occupation information for tipped workers.
    • Occupations typically earning tips include:
      • Food & Beverage: Servers, bartenders, baristas, bussers, chefs, bakers, hosts
      • Entertainment & Events: Dealers, musicians, DJs, comedians, ushers, influencers
      • Hospitality & Guest Services: Hotel staff, bellhops, baggage handlers, housekeepers
      • Home Services: Cleaners, gardeners, plumbers, electricians, HVAC, repairers
      • Personal Services: Caregivers, nannies, pet sitters, wedding planners, photographers
      • Personal Appearance & Wellness: Hairstylists, barbers, makeup artists, massage therapists, trainers
      • Recreation & Instruction: Caddies, ski instructors, dance teachers, art tutors, tour guides
      • Transportation & Delivery: Taxi/rideshare drivers, delivery drivers, valets, movers
    • Important exclusions: Tips received in health services, performing arts, and athletics do not qualify.
    • This list is not final and is subject to change by the US Treasury and IRS.
  • Overtime Pay Exemption
    • Employees can deduct up to $12,500 ($25,000 for joint filers) of overtime pay from income tax.
    • Your payroll system will track and report overtime pay:
      • Guidance for 2025 is pending from the IRS.
      • Starting in 2026, overtime pay will be reported on Form W-2, Box 12.
    • This only applies to overtime required by federal law, not additional pay from employer discretion or state law.
    • This provision starts January 1, 2025, and ends December 31, 2028.
  • Paid Family and Medical Leave Tax Credit
    • Businesses can claim an increased tax credit for providing paid leave to employees.
    • Small businesses may qualify for a credit of up to $600,000.
    • A written leave policy is required to qualify.
    • This provision starts January 1, 2026.
  • Childcare and Dependent Care Tax Credit
    • The limit for Dependent Care Flexible Spending Accounts (FSAs) will be raised.
    • The tax credit for offering childcare benefits will increase.
    • This provision starts January 1, 2026.
  • Student Loan Assistance (Employer Tax-Free Benefit)
    • Employers can continue to offer up to $5,250 per year in tax-free assistance for employee student loan payments.
    • This provision starts January 1, 2026.

  • Higher 1099 Reporting Thresholds
    • Employers are now only required to issue 1099s to the IRS and provide copies to contractors earning $2,000 or more (previously $600).
    • Your payroll system will file 1099s for contractors unless otherwise instructed.
      • For Tax Year 2026, reporting for contractor payments under $2,000 will be optional, with these 1099s filed in January 2027.
      • Important: For Tax Year 2025, you must still file 1099s in January 2026 for any contractor paid $600 or more.
    • Find more information in the FAQ section of our article on Distributing 1099s.
  • Research and Development (R&D) Tax Credit Rules
    • Businesses can now immediately deduct 100% of domestic R&D expenses.
    • Foreign R&D expenses must still be deducted over time.
    • This provision starts January 1, 2025.
  • Health Savings Account (HSA) Expansion
    • More health plans will now qualify for HSA use.
    • Your benefit tools will support these changes.
    • This provision starts January 1, 2026.
    • HSA's and GoCo
      .
  • Depreciation and Interest Deductions (Section 179 & 163(j))
    • Increased deduction limits for equipment purchases.
    • Improved interest deductions on loans.
    • This provision starts January 1, 2025.
  • ACA/Medicaid Eligibility Changes
    • Stricter rules will determine who qualifies for Affordable Care Act (ACA) health benefits.
    • Some workers may lose eligibility.
    • This provision starts January 1, 2027.
  • Data Security and AI Rules
    • New federal regulations will enhance cybersecurity and fraud prevention.
    • Businesses are required to protect sensitive data.
    • These rules are effective immediately and may evolve with agency updates.
What Your Company Needs to Do
To stay informed about the impact of the OBBB Act:
  • Stay Updated: We will provide updates as the IRS releases further guidance.
  • Be Prepared: Anticipate changes to W-2s, 1099s, onboarding forms, and payroll tax processes.
  • Educate Your Team: Share any support materials we provide with your employees.
  • Monitor Your Email: We will contact you if any action is required from your company.