One, Big, Beautiful Bill Act

On July 4, 2025, President Trump signed The One, Big, Beautiful Bill Act (The OBBB), a spending and tax bill that extends many of the 2017 Tax Cuts and Jobs Act (TCJA), most of which were set to expire at the end of 2025. The bill extends these tax cuts and makes other changes.

This explains the employee benefits and various business-related tax provisions in The OBBB, including how those provisions differ from existing law. Everyone should consult with their tax advisors to understand how these provisions impact their tax status. 

Paid Family & Medical Leave Credit

The OBBB permanently extends the TCJA-provided temporary tax credit, which is limited to certain qualifying wages for paid leave, and increases the creditable amount to 12.5–25% of paid leave wages or insurance premiums. It also lowers the employee tenure requirement from 12 months to six months. Typically, a written family leave policy is needed to qualify for the credit. Family leave benefits mandated by state or local law or paid for by government are not eligible. An employer cannot deduct insurance premiums and claim the credit for the same expenses.

Childcare Credit & DCAP Expansion

Under the OBBB, the childcare facility expense credit for employers is increased to 40% of expenses up to $500,000, or 50% up to $600,000 (for small employers), a significant increase from the previous credit of 25% (up to $150,000). The new law also permits third-party provider pooling and participation by aggregators. Additionally, the employee Dependent Care Assistance Program (DCAP) limits are raised to $7,500 (for joint filers) and $3,750 (for single filers) annually, up from $5,000 and $2,500. 

Health Savings Accounts (HSAs)

Under The OBBB, ACA Bronze and catastrophic plans will qualify as High-Deductible Health Plans (HDHPs). The new law also states that HSAs may be used to pay for Direct Primary Care (DPC) services up to $150 per month for individuals and $300 for families. Finally, The OBBB makes permanent the safe harbor, initially established under the CARES Act in response to COVID-19, which allows pre-deductible coverage of telehealth and remote-care services under HDHPs without disqualifying HSA eligibility.

Student Loan Repayment Benefit

The TCJA provision that allows employer student loan repayments to be excluded from employee income (up to $5,250 per year) has been made permanent under The OBBB, with inflation indexing starting in 2027. 

Fringe Benefits

Since 2009, employers have been allowed to offer a tax-free reimbursement of up to $20 per month for bicycle commuting expenses (purchase, repair, storage). However, this benefit was suspended by the TCJA through 2025 and has now been permanently repealed for civilian employers under the OBBB.

Under the TCJA, the deduction for moving expenses and the income exclusion were suspended through 2025, except for active-duty military members. The OBBB permanently repeals the deduction for non-military moving expenses and the exclusion from taxable wages.

Executive Compensation

Under previous law, executive compensation exceeding $1 million per covered employee was non-deductible under Internal Revenue Code (IRC) § 162, but this applied separately to each employer within a controlled group. Under The OBBB, compensation is combined across all members of a controlled group of employers, applying a single $1 million deduction limit.

Qualified Small Business Stock (QSBS)

Under the OBBB, the exclusion of gain from the sale of QSBS is significantly increased for stock acquired after the bill’s enactment. These enhancements include:

• Tiered Holding Periods: Instead of the current flat five-year requirement for a complete 100% gain exclusion, the OBBB introduces a phased-in schedule: 50% exclusion after three years of holding; 75% exclusion after four years; and 100% exclusion after five years.

• Increased Exclusion Cap: The per-stockholder-per-issuer gain exclusion cap increases from $10 million to $15 million, with indexing to take effect in 2027.

• Higher Gross Asset Threshold: The qualifying corporation size limit rises from $50 million to $75 million, with inflation indexation beginning in 2027, thereby including more companies in the QSBS benefit. 

Full Expensing of Research and Development Expenses

Domestic R&D expenditures between January 1, 2025, and December 31, 2029, can now be deducted immediately. Small businesses with average gross receipts of $31 million or less over the past three years are eligible for retroactive relief. Foreign R&D expenses are still subject to amortization over a 15-year period. Previously, under the TCJA, domestic research costs were generally required to be amortized over five years, while foreign research expenses were amortized over 15 years.

Permanent 100% Bonus Depreciation

Bonus depreciation is a tax benefit that allows businesses to deduct a significant portion (often 100%) of the cost of specific qualified property in the year it is placed in service, rather than spreading out the depreciation over the asset’s useful life. The OBBB reinstates and makes permanent 100% depreciation for qualified property placed in service on or after January 19, 2025. Before enactment of The OBBB, bonus depreciation was scheduled to phase down after 2022 (80% in 2024, decreasing to zero in 2027).

Business Interest Expense Limitation

The calculation of the business interest expense limitation, which caps the amount of business interest expense a taxpayer can deduct in a given tax year, has reverted to the more lenient “Earnings Before Interest, Taxes, Depreciation, and Amortization” standard for tax years starting in 2025. Before the enactment of The OBBB (since 2022), the interest limitation was calculated using a stricter “Earnings Before Interest, Taxes” standard, which limited allowable interest deductions. The definition of business interest expense has also been updated to include particular capitalized interest.

Enhanced § 179 Expensing Cap

Section 179 of the Internal Revenue Code allows businesses to immediately expense the full purchase price of specific qualifying property, rather than recovering the cost over time through depreciation. It is a tax election, not automatic, and is often utilized by small and medium-sized businesses to accelerate cost recovery and reduce taxable income in the year the property is placed in service. The OBBB raises the expensing limit to $2.5 million, with a phase-out beginning at $4 million, both indexed for inflation starting in 2025. Under the previous law, there was a $1.25 million cap with a $3.12 million phase-out limit, which had not been adjusted for inflation.

Optional 100% Expensing for Qualified Production Property

Qualified Production Property (QPP) refers to a specific type of tangible property used in domestic manufacturing or industrial production activities. This category was expanded and specially designated under The OBBB to promote U.S.-based industrial investment. The OBBB introduces QPP as a new tax classification aimed at strategic sectors, especially those related to manufacturing, advanced technology, national security, and critical supply chain resilience. QPP includes manufacturing equipment, industrial machinery, robotic systems, assembly-line components, and production-related software and control systems (if integrated into tangible assets). Specifically excluded from being classified as QPP are real estate, office equipment not used in production, general-purpose vehicles, and non-depreciable property. The OBBB offers a new and optional 100% expensing regime for Qualified Production Property, distinct from IRC § 179 expensing and bonus depreciation. Under previous law, similar production property expenses would generally qualify only for bonus depreciation or Modified Accelerated Cost Recovery System (MACRS) depreciation over 3–20 years, depending on the asset class. The Qualified Production Property must be property whose construction began after January 19, 2025, and before January 1, 2029, or property acquired after January 19, 2025.

Permanent Pass-Through (Qualified Business Income) Deduction

The OBBB permanently extends the deduction for Qualified Business Income (QBI) at the current 20% rate, which the TCJA set to expire at the end of 2025. A proposed rate increase to 23% was not included in the OBBB. QBI refers to specific domestic business income earned by pass-through entities, including sole proprietorships, partnerships, S corporations, and some trusts and estates. There is a minimum deduction of $400 for entities with QBI of at least $1,000, and the phase-in limit amounts were increased from $50,000 to $75,000 for single filers and from $100,000 to $150,000 for joint filers.

Permanent Excess Business Loss Limitation

The Excess Business Loss Limitation restricts noncorporate taxpayers, such as individuals, trusts, and estates, from deducting business losses above certain thresholds ($313,000 in 2025) against their nonbusiness income (like wages, interest, dividends, or capital gains). The OBBB repeals the sunset clause for this limitation, amends IRC § 461(l) to make it permanent for tax years starting after December 31, 2025, and states that any disallowed losses are carried forward as net operating losses. Additionally, the OBBB codifies technical clarifications from prior IRS guidance, including: the requirement to combine all trade or business income and deductions from pass-through entities owned by the taxpayer; and the application of the limit at the individual level, even if losses are passed through from multiple sources. 

Enhanced Opportunity Zones

Opportunity Zones are census tracts designated by states and approved by the U.S. Department of the Treasury as low-income communities. The law provides favorable capital gains tax treatment for investments in Opportunity Zones made through Qualified Opportunity Funds (QOFs), designed to encourage long-term private investment in economically distressed areas. The OBBB significantly extends and expands the Opportunity Zone program, including increasing the capital gains deferral period from December 31, 2026, to December 31, 2029, and restoring the 10% basis increase for investments made before December 31, 2026, that are held for at least five years. (Note that the 15% step-up for seven-year holds was not reinstated.) The OBBB also allows states to designate new Opportunity Zones in 2026 based on updated census and economic data, along with reforms to improve oversight and accountability. Additionally, the types of businesses excluded from Qualified Opportunity Zone eligibility, known as "sin businesses," have been broadened under the OBBB.

Form 1099 & 1099-K Reporting Thresholds

The OBBB reinstates the pre-2021 de minimis threshold for filing Forms 1099. As a result, Forms 1099-K (for third-party network transactions, such as Venmo and PayPal) are only required if payments surpass both $20,000 and 200 transactions per payee in a calendar year. The previous threshold for 1099-K issuance by payment platforms was lowered to amounts exceeding $600 in total payments, with no transaction minimum.

The OBBB also changes the threshold for Forms 1099‑NEC and 1099‑MISC (used for business payments reporting) by increasing it to $2,000 per payee annually, adjusted for inflation after 2026, starting with payments made after December 31, 2025. Before the OBBB, business payments of $600 or more to a non-employee (such as an independent contractor, rent, or legal services) required issuing a Form 1099-NEC or 1099-MISC.

The OBBB requires new 1099-style reporting to support emerging deductions, including tip deductions (not taxed up to a specified limit), overtime pay deductions, car loan interest deductions, and excise-taxed remittances.

Tip Income

The tip income provisions in The OBBB introduce important changes to how tip income is reported and deducted for employees in service industries where workers are typically and regularly tipped. The IRS will need to issue guidance on this issue to help improve tax compliance, increase tax benefits for individual earners, and offer more relief for employers in sectors that rely heavily on tips. Tips are limited to cash tips, so the IRS will need to clarify whether credit card payments and app-based payments count as cash tips. Payroll taxes are not affected by the tip income provisions of The OBBB. These tip income exclusions are temporary and will expire at the end of 2028.

The OBBB requires employers to track and report tip income as part of wages for payroll tax purposes, ensuring accurate tax remittance. Employers are also eligible for a 100% deduction for the tips they report, provided they are properly documented and paid to employees. This enables employers to offset payroll taxes related to tip income.

Additionally, under the OBBB, individual employees who receive tip income are allowed a new above-the-line deduction from gross income of up to 10% of their reported tips. This deduction is intended to cover expenses typically incurred by tip earners, such as personal clothing, travel, or business-related costs (not reimbursed by the employer). This new deduction has a cap and a phase-down:

• The tip income deduction is limited to $5,000 per year per individual, no matter how much tip income is reported.

• For individuals with modified adjusted gross income (MAGI) above $100,000 (single filers) or $200,000 (joint filers), the tip income deduction will gradually phase out.

• The deduction gradually phases out for MAGI above these thresholds and is entirely eliminated once MAGI reaches $150,000 (single) or $300,000 (joint).

The OBBB also expands the tip credit under the Fair Labor Standards Act (FLSA), allowing service industry employers to count a larger portion of tips toward meeting the federal minimum wage. This credit is gradually phased out for employers with gross receipts over $5 million, in line with a steady increase in the federal minimum wage.

Overtime Pay

Under the OBBB, qualifying workers can temporarily (until 2028) deduct bonus pay received for overtime from their gross income. This deduction is capped at $12,500 per employee for single filers or $25,000 for joint filers. For those with modified adjusted gross incomes (MAGI) exceeding $150,000 (or $300,000 for joint filers), however, the deduction is gradually phased out—reduced by $100 for every $1,000 of MAGI.

The deduction is limited to the premium portion of overtime pay, which is the amount paid more than an employee’s standard hourly rate. This deduction only applies to the mandatory premium pay under Section 7 of the Fair Labor Standards Act. Overtime pay that exceeds federal requirements due to state laws or union contracts cannot be deducted.

Employers must now report qualified overtime compensation separately on Form W-2. Starting with the tax years after December 31, 2025, withholding procedures will be updated to include this deduction. For the 2025 tax year, a transition rule under The OBBB allows employers to use any reasonable IRS-approved method to estimate and report qualified overtime compensation separately. Employers should stay updated with IRS guidance for more details on this reporting and deduction process.

Charitable Contribution Deductibility

The OBBB includes several provisions affecting the deductibility of charitable contributions. Under the OBBB, corporations can only deduct charitable contributions that exceed 1% of their taxable income, starting with tax years after December 31, 2025—the 10% cap on deductions remains in effect. While corporate contributions exceeding the 10% limit can still be carried forward for five years, disallowed amounts due to the new 1% floor can only be carried forward if the total corporate contributions surpass 10% of taxable income, including the disallowed amounts. For tax years beginning after December 31, 2025, non-itemizing taxpayers may deduct cash contributions up to $1,000 (single) or $2,000 (joint), but contributions to donor-advised funds are not eligible for deduction. A similar provision was in place during the pandemic, allowing $300 above-the-line charitable deductions.

The OBBB also stipulates that individuals must itemize deductions only if their contributions exceed 0.5% of their adjusted gross income (AGI). Additionally, the TCJA’s temporary increase in the AGI limit for cash donations to public charities (from 50% to 60%) is made permanent by The OBBB. For high-income donors in the top tax bracket, the value of itemized deductions is reduced, now limited to 35% instead of 37%. As a result, a $1,000 charitable donation yields a $350 deduction instead of $370. Starting in 2027, there will be a tax credit of up to $1,700 for cash gifts to eligible scholarship organizations, which cannot also be claimed as a charitable deduction. Under The OBBB, the federal estate and gift tax exemption rises to $15 million in 2026 (adjusted for inflation thereafter), and university endowments will face a new tiered tax on investment earnings.