By Ari Sonneberg and Barry Salkin
On July 4, 2025, President Trump signed into law The One, Big, Beautiful Bill Act (The OBBB), a spending and tax bill that includes signature policies of the President’s second-term agenda. The OBBB is an extension of the President’s 2017 Tax Cuts and Jobs Act (TCJA), many of the provisions of which were scheduled to sunset at the end of 2025. The newly enacted bill makes permanent most of the tax cuts under the TCJA.
Below is a description of the employee benefits and several business-related tax provisions found in The OBBB including how those provisions differ from the pre-existing law.
Paid Family & Medical Leave Credit
The OBBB permanently extends the TCJA-provided temporary tax credit 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 provides for a reduced employee tenure requirement, from 12 months to six months. Generally, to qualify for the credit, a written family leave policy is required. Family leave benefits that are mandated by state or local law or paid for by state or local government are not eligible for the credit. An employer cannot take a business deduction for the cost of insurance premiums and also claim the credit.
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 drastic increase from the prior credit of 25% (up to $150,000). The new law also allows for third-party provider pooling and aggregator participation. In addition, the employee Dependent Care Assistance Program (DCAP) limits are increased to $7,500 (for joint filers) and $3,750 (for single filers) per year, respectively, from $5,000 and $2,500.
Health Savings Accounts (HSAs)
Under The OBBB, ACA Bronze/catastrophic plans will qualify as High-Deductible Health Plans (HDHPs). The new law also provides that HSAs may be used to pay for Direct Primary Care (DPC) services up to $150/month for individuals and $300 for families. Finally, The OBBB makes permanent the safe harbor, originally put in place under the CARES Act in response to COVID-19, allowing pre-deductible coverage of telehealth and remote-care services under HDHPs without disqualifying HSA eligibility.
Student Loan Repayment Benefit
The TCJA provision allowing employer student loan repayments to be excluded from employee income (up to $5,250/year), set to expire after 2025, has been made permanent under The OBBB, with indexing for inflation beginning in 2027.
Fringe Benefits
Since 2009, employers were permitted to offer a tax-free reimbursement of up to $20 per month for bicycle commuting expenses (purchase, repair, storage). This benefit, however, was suspended by the TCJA through 2025 and has now been permanently repealed under The OBBB for civilian employers.
Under the TCJA, the moving expense benefit deduction and income exclusion were suspended through 2025, except with respect to active-duty military. The OBBB permanently repeals the non-military moving expense benefits deduction and the exclusion from taxable wages.
Executive Compensation
Under prior law, executive compensation over $1 million per covered employee was non-deductible under Internal Revenue Code (IRC) § 162, but applied separately to each employer within a controlled group. Under The OBBB, compensation is aggregated across all members of a controlled group of employers, applying a global $1 million deduction cap.
Qualified Small Business Stock (QSBS)
Under The OBBB, the exclusion of gain from the sale of QSBS, is significantly enhanced for stock acquired after the bill’s enactment. These enhancements include:
- Tiered Holding Periods: Instead of the current flat five-year requirement for a full 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 rises from $10 million to $15 million, with indexing beginning in 2027.
- Higher Gross Asset Threshold: The qualifying corporation size limit increases from $50 million to $75 million, also with inflation indexation starting in 2027, thereby including more companies in the QSBS benefit.
Full Expensing of Research and Development Expenses
Domestic R&D expenditures incurred between January 1, 2025, and December 31, 2029, may now be deducted immediately. Retroactive relief is available for small businesses with average gross receipts of $31 million or less over the prior three years. Foreign R&D expenses remain subject to amortization over 15 years. Previously, under the TCJA, domestic research expenditures generally had to be amortized over five years (and 15 years for foreign research expenses).
Permanent 100% Bonus Depreciation
Bonus depreciation is a tax incentive that allows businesses to deduct a significant percentage (often 100%) of the cost of certain qualified property in the year the property is placed in service, rather than depreciating it gradually over the asset’s useful life. The OBBB reinstates and makes permanent 100% depreciation for qualified property placed in service from January 19, 2025, forward. Prior to enactment of The OBBB, bonus depreciation was in a scheduled phase-down post-2022 (80% in 2024 down to zero in 2027).
Business Interest Expense Limitation
Calculation of the business interest expense limitation, which limits the amount of business interest expense that a taxpayer can deduct in a given taxable year, has reverted to the more lenient “Earnings Before Interest, Taxes, Depreciation, and Amortization” standard for tax years beginning in 2025. Prior to the enactment of The OBBB (since 2022), the interest limitation was calculated using a more stringent “Earnings Before Interest, Taxes” standard, which tightened allowable interest deductions. The definition of business interest expense has been modified to include certain capitalized interest.
Enhanced § 179 Expensing Cap
Internal Revenue Code § 179 allows businesses to immediately expense the full purchase price of certain qualifying property, rather than recovering the cost over time through regular depreciation. It is a tax election, not automatic, and is often used by small and medium-sized businesses to accelerate cost recovery and reduce taxable income in the year that property is placed in service. The OBBB increases the expensing limit to $2.5 million, with a phase-out at $4 million, and both are indexed for inflation starting in 2025. Under prior law, there was a $1.25 million cap with a $3.12 million phase-out limit, without adjustment for inflation.
Optional 100% Expensing for Qualified Production Property
Qualified Production Property (QPP) refers to a specific category of tangible property that is used in domestic manufacturing or industrial production activities. This category was expanded and specially designated under The OBBB to encourage U.S.-based industrial investment. The OBBB introduces QPP as a new tax classification designed to target strategic sectors, particularly those tied 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 categorized as QPP are real estate, office equipment not used in production, general-purpose vehicles and non-depreciable property. The OBBB introduces a new and elective 100% expensing regime for Qualified Production Property, separate and distinct from IRC § 179 expensing and bonus depreciation. Under prior law, similar production property expenses would generally only qualify for bonus depreciation or Modified Accelerated Cost Recovery System (MACRS) depreciation over 3–20 years, depending on asset class. The Qualified Production Property must either be property the construction of which 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 existing 20% rate, which under the TCJA was set to expire at the end of 2025. A proposed increase of the rate to 23% was not included in The OBBB. QBI is certain 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 limits the ability of noncorporate taxpayers (such as individuals, trusts, and estates) to deduct business losses in excess of certain thresholds ($313,000 in 2025) against their nonbusiness income (e.g., wages, interest, dividends, or capital gains). The OBBB repeals the sunset provision for the excess business loss limitation, amends IRC § 461(l) to make the rule permanent for tax years beginning after December 31, 2025, and provides that any disallowed losses are carried forward as net operating losses. In addition, The OBBB codifies technical clarifications from prior IRS guidance, including: the requirement to aggregate 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 nominated by states and certified by the U.S. Treasury as low-income communities. The law provides preferential capital gains tax treatment for investments in Opportunity Zones made through Qualified Opportunity Funds (QOFs), designed to spur long-term private investment in economically distressed communities. The OBBB enacts a significant extension and expansion of the Opportunity Zone program, including the extension of the capital gains deferral period from December 31, 2026, to December 31, 2029, and the reinstatement of the 10% basis increase for investments made before December 31, 2026, and held for at least five years (note that the 15% step-up for seven-year holds was not reinstated). The OBBB also authorizes states to designate new Opportunity Zones in 2026, based on updated census and economic data and incorporates reforms to enhance oversight and accountability. The types of businesses excluded from Qualified Opportunity Zone eligibility (“sin businesses”) have also been expanded under The OBBB.
Form 1099 & 1099-K Reporting Thresholds
The OBBB restores the pre‑2021 de minimis threshold for filing Forms 1099. As a result, Forms 1099-K (for third-party network transactions, e.g., Venmo, PayPal) are required only if payments exceed both $20,000 and 200 transactions per payee in a calendar year. The prior threshold for 1099‑K issuance by payment platforms had been reduced to amounts exceeding $600 in aggregate payments, with no transaction minimum.
The OBBB also addresses the threshold for Forms 1099‑NEC and 1099‑MISC (for purposes of business payments reporting) by increasing the reporting threshold to $2,000 per payee per year, indexed for inflation after 2026, effective for payments made after December 31, 2025. Prior to The OBBB, business payments of $600 or more to a non‑employee (e.g., independent contractor, rent, legal services) triggered the requirement to issue a Form 1099‑NEC or 1099‑MISC.
The OBBB mandates new 1099-style reporting to support emerging deductions including tip deductions (not taxed up to designated limit), overtime pay deductions, car loan interest deductions, and excise-taxed remittances.
Tip Income
The tip income provisions in The OBBB introduce critical changes to both the reporting and the deduction of tip income for employees in the service industries in which workers are customarily and regularly tipped, an issue with respect to which the IRS will need to issue guidance, aiming to improve tax compliance, increase tax benefits for individual earners, and provide more relief for employers in tip-heavy sectors. Tips are restricted to cash tips, so the IRS will need to confirm that credit card payments and payments in apps constitute cash tips. Payroll taxes are unaffected by the tip income provisions of The OBBB. The tip income exclusions are temporary and 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 granted a 100% deduction for the tips they report, provided they are properly documented and paid to employees. This allows employers to offset payroll taxes related to tip income.
Additionally, under The OBBB, individual employees who receive tip income are provided a new above-the-line deduction from gross income of up to 10% of their reported tips, designed 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 comes with a cap and phase-down:
- The tip income deduction is capped at $5,000 annually per individual, regardless of the total amount of tips reported.
- For individuals with modified adjusted gross income (MAGI) above $100,000 (single filers) or $200,000 (joint filers), the tip income deduction will phase down gradually.
- The deduction begins to phase out for MAGI above these thresholds and is completely 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 apply a larger portion of tips toward meeting the federal minimum wage. This credit is phased out for employers with gross receipts over $5 million, in line with a gradual increase in the federal minimum wage.
Overtime Pay
Under The OBBB qualifying workers can temporarily (until 2028) deduct premium 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 (i.e., the amount paid above an employee’s standard hourly rate) of overtime pay. This deduction applies only 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 does not qualify for the deduction.
Employers must now separately report qualified overtime compensation on Form W-2. Starting with tax years after December 31, 2025, withholding procedures will be updated to reflect 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 account for qualified overtime compensation separately. Employers should monitor IRS updates for additional guidance 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 deduct only those charitable contributions exceeding 1% of their taxable income beginning with tax years after December 31, 2025 – the 10% cap on deductions remains in place. While corporate contributions exceeding the 10% ceiling can continue to be carried forward for five years, amounts disallowed due to the new 1% floor can only be carried forward if the aggregate corporate contributions exceed 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 effect during the pandemic, permitting $300 above-the-line charitable deductions.
The OBBB also provides that itemizing individuals may only deduct contributions to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI). In addition, the TCJA’s temporary increase in the AGI limit for cash contributions to public charities (from 50% to 60%) is made permanent under The OBBB. For high-income donors in the top tax bracket, the value of itemized deductions is reduced, now capped at 35% instead of 37%. As a result, a $1,000 charitable contribution results in a $350 deduction, rather than a $370 deduction. Beginning in 2027, a tax credit of up to $1,700 is available for cash gifts to eligible scholarship-granting organizations, which cannot also be claimed as a charitable contribution. Under The OBBB, the federal estate and gift tax exemption increases to $15 million in 2026 (adjusted for inflation thereafter), and university endowments face a new tiered tax on investment earnings.
