Update Applicable to:	Effective Date
All Employers	Multiple Dates – See Details Below

What happened?

On July 4, 2025, President Donald J. Trump signed the One Big Beautiful Bill (OBBB) into law. At VensureHR, we recognize that the OBBB is a comprehensive and far-reaching piece of legislation. In this summary, we focus exclusively on the provisions that matter most to employers, particularly those affecting payroll, tax reporting, employee benefits, and compliance.

Overview:
Note: Applicable section numbers are included below to assist employers with navigating to that specific area of the bill.

Payroll & Tax Reporting

• No Federal Income Tax on Tips (Sec. 70201): Effective for 2025 through 2028, employees and self-employed individuals may deduct qualified tips received in occupations that are listed by the IRS as customarily and regularly receiving tips on or before December 31, 2024, and that are reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
  
  • “Qualified tips” are voluntary cash or charged tips received from customers or through tip sharing.
  • Maximum annual deduction is $25,000; for self-employed, deduction may not exceed an individual’s net income (without regard to this deduction) from the trade or business in which the tips were earned.
  • Employees must work in occupations where receiving tips is customary, such as servers, bartenders, hotel staff, hairstylists, etc. By October 2, 2025, the IRS will publish a list of occupations that “customarily and regularly” received tips on or before December 31, 2024.
    

• No Federal Income Tax on Overtime (Sec. 70202): Effective for 2025 through 2028, individuals who receive qualified overtime compensation may deduct the pay that exceeds their regular rate of pay – such as the “half” portion of “time-and-a-half” compensation — that is required by the Fair Labor Standards Act (FLSA) and that is reported on a Form W-2, Form 1099, or other specified statement furnished to the individual.
  
  • Employees must receive OT pay as defined by the Fair Labor Standards Act (FLSA) (pay for hours worked beyond 40 in a workweek at a premium rate), and the deduction only applies to the premium portion of OT pay (the amount above the regular hourly rate)
  • The maximum deduction for OT income is $12,500 per year (up to $25,000 if married filing jointly)

• New W-2 Reporting Standards:Employers must show qualified tips and overtime as distinct line items. For 2025, a “reasonable approximation method” may be used (pending Treasury guidance).
  
• Employers must file information returns with the IRS (or SSA) and furnish statements to taxpayers showing certain cash tips received and the occupation of the tip recipient.
  
• Employers will need to adjust payroll systems to accurately track and separately report these amounts on W-2 forms.

• SALT Deduction Cap Raised (Sec. 70120): The federal cap on state and local tax deductions increases from $10,000 to $40,000 starting in 2025, with phase-outs for high earners.

Employee Benefits & Health Plans

• Health Savings Accounts (HSAs) (Sec. 71307): ACA Bronze and Catastrophic plans now qualify as high-deductible health plans (HDHPs), making them HSA-eligible. HSAs can now be used to pay for:
  • Direct Primary Care (DPC) fees (up to $150/month for individuals or $300/month for families).
  • Telehealth services before the deductible is met (permanently allowed).

• Dependent Care Flexible Spending Accounts (FSAs) (Sec. 70404): The annual contribution limit increases from $5,000 to $7,500 (or $3,750 for married filing separately) starting in 2026. Employers must update plan documents and enrollment systems accordingly.

• First-Dollar Telehealth Coverage (Sec. 71306): HDHPs (High-Deductible Health Plans) may permanently cover telehealth services before deductibles are met, retroactive to Jan. 1, 2025.

• Paid Family and Medical Leave Credit (Sec. 70304): Made permanent. Employers offering paid leave can claim a tax credit. The minimum service requirement drops from 12 to 6 months. The amendments made shall apply to taxable years beginning after December 31, 2025. To claim the credit, employers must have a written policy that offers a minimum of two weeks of PFML annually or a policy offering more than their state’s mandated paid family and medical leave.

• Employer-Provided Childcare Credit (Sec. 70401): Credit cap increased to $500,000 ($600,000 for small businesses), with a higher reimbursement rate (40%).

• Trump Accounts (Sec. 70204): New tax-free savings accounts for children under 18. Employers may contribute up to $2,500 per year tax-free.

Compliance & Enforcement

• Increased ICE Enforcement (Sec. 100052): ICE’s budget has tripled. Employers in high-risk industries (e.g., hospitality, agriculture) should prepare for more I-9 audits and worksite inspections.

• Medicaid Work Requirements (Sec. 71119): May increase demand for low-wage jobs. Employers may need to verify hours for employees relying on Medicaid.

• CMS Rule Delays (Sec. 71101): Delays implementation of Medicaid and long-term care staffing rules until 2034.

• Payment Error Penalties (Sec. 71106): Starting in 2030, states with high improper payment rates may face reduced federal Medicaid funding.

Source References

• IRS FS-2025-03 – One Big Beautiful Bill Act: Tax deductions for working Americans and seniors
• HR 1 – One Big Beautiful Bill Act
• Congressional Budget Office – OBBBA

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