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.