The One Big Beautiful Bill Act (OBBBA) - What Employers and Employees Need to Know

Congress has officially passed the One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025. It’s a sweeping package with wide-ranging implications for businesses and workers across the country. We’ve broken down the sections most relevant to employers so you can stay focused on your business while we help make sense of the new rules.

1. Overtime Compensation Deduction

Starting in tax year 2025, eligible employees can deduct up to $12,500 annually of FLSA-compliant overtime pay ($25,000 for joint filers). However, this deduction phases out for individuals earning over $150,000 AGI ($300,000 for joint). Overtime not governed by the FLSA—such as state-regulated or contract-based arrangements—is excluded.

Key employer takeaway: Maintain precise records of all overtime and ensure compliance with federal FLSA definitions.

2. Tip Income Deduction

Employees who earn tips can now deduct up to $25,000 of qualifying tips annually. This includes pooled tips and voluntary gratuities, but excludes mandatory service charges and tips from industries such as law, finance, healthcare, and entertainment.

Like the overtime deduction, the tip deduction also phases out above $150,000 AGI ($300,000 joint). To qualify, the employee must have been employed and regularly tipped before December 31, 2024.

Employer reminder: Track and report all tips carefully to ensure staff can claim this benefit.

3. Paid Family & Medical Leave Tax Credit Enhanced

Effective after 2025, employers offering at least two weeks of paid leave at 50% wage replacement will qualify for a 40% tax credit—up to 50% for businesses with revenue under $29 million. The credit is capped at $500,000 ($600,000 for small businesses).

To qualify:

• Employees must be full-time and employed at least six months.

• At least half of the leave must be paid at the employee's regular rate.

• A documented leave policy must be in place.

4. Student Loan Repayment Tax Exclusion

A previous temporary tax break allowing up to $5,250 in student loan repayment per employee, tax-free, has been made permanent.

Why this matters: Employers offering this benefit can continue doing so with no federal payroll tax impact.

5. Health Benefit Plan Updates

• Bronze and Catastrophic marketplace plans are now HSA-eligible.

• HSA funds (up to $150 individual/$300 family per month) can be used for direct primary care arrangements.

• The $5,000 cap on Dependent Care FSAs is now increased to $7,500—the first hike since the 1980s.

6. Business Investment Deductions

• The expensing cap for business property increases to $2.5 million (from $1.5 million).

• The phaseout threshold has risen to $4 million.

• The pre-2022 definition of adjusted taxable income is restored, which could boost the value of business interest deductions.

7 . R&D Expense Deduction Restored

Good news for innovation: businesses can once again deduct all domestic R&D expenses in the year incurred, starting in 2025. This reverses the 2022 change that forced amortization over five or fifteen years.

Small businesses (under $31 million in average annual receipts) can apply the change retroactively for 2022–2024 by filing an amended return.

What this means: Immediate deductions could ease cash flow, and tracking U.S. vs. international research is now critical.

Final Thought

The OBBBA is far-reaching, and this summary covers the most employer-relevant provisions. As always, we recommend working with your accountant or financial advisor to identify how these updates apply to your business operations and to ensure you’re making the most of every available deduction.

Exploring 401(k) Options for Small Businesses: A Comprehensive Guide

Running a small business comes with a myriad of responsibilities, and one key aspect often overlooked is providing retirement benefits for employees. A 401(k) plan is an excellent way to help your team save for the future while attracting and retaining top talent. In this blog post, we'll explore the various options available for small businesses looking to implement 401(k) plans.

1. Traditional 401(k) Plans: Traditional 401(k) plans are the most common retirement savings vehicles. They allow employees to contribute a portion of their pre-tax income, reducing their taxable income for the year. Employers can also choose to match a percentage of employee contributions, providing an additional incentive for participation.

2. Safe Harbor 401(k) Plans: Safe Harbor plans are designed to automatically pass non-discrimination testing, making them an attractive option for businesses aiming to avoid compliance issues. With Safe Harbor, employers are required to make contributions to employees' accounts, either through matching contributions or non-elective contributions.

3. Simple 401(k) Plans: Simple 401(k) plans are specifically tailored for small businesses with fewer than 100 employees. They offer lower administrative costs and simplified procedures for both employers and employees. While employer contributions are optional, employees can make salary deferral contributions, and employers have the flexibility to either match contributions or make non-elective contributions.

4. Professional Employer Organizations (PEOs): Small businesses can explore the option of joining a PEO to gain access to retirement plans offered by the PEO. PEOs aggregate employees from multiple small businesses, potentially providing cost savings, administrative efficiency, and access to a broader range of retirement benefits.

Choosing the right 401(k) plan for your small business involves considering factors such as the number of employees, budget constraints, and the level of administrative involvement you desire. By carefully assessing your needs and exploring the options outlined above, you can provide a valuable employee benefit that not only supports your team's financial future but also contributes to the overall success and competitiveness of your business. Remember, a well-structured 401(k) plan not only benefits your employees but can also be a strategic tool for attracting and retaining top talent in the competitive business landscape.