518-373-4111
On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA). This sweeping tax and spending package introduces significant changes to business taxation, payroll reporting, and employee benefits. While some provisions offer immediate relief, others introduce new reporting requirements and planning opportunities. Whether you’re a small business owner, finance professional, or human resources manager, this legislation deserves your attention.
Here are the most relevant provisions of the OBBBA and how they may impact your business operations and strategic planning in the months and years ahead.
Please note that tax and legal updates or any other information provided by GTM is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should consult with legal counsel and tax advisors for personalized legal and tax advice.
For more details about the impact of the OBBBA on employee benefits, read: Major Shifts for Employee Benefits: The “One Big Beautiful Bill Act” is Here from the GTM Insurance Agency.
Section 199A Deduction Becomes Permanent
One of the most anticipated outcomes of the OBBBA is the permanent extension of the 20% qualified business income (QBI) deduction for pass-through entities. This deduction, originally set to expire in 2025, has provided substantial relief to small businesses since its inception under the Tax Cuts and Jobs Act. The new law not only locks in the benefit for the foreseeable future but also expands access by increasing the income thresholds at which the deduction begins to phase out.
Even businesses with modest profits may benefit, thanks to a new minimum deduction of $400 for those with at least $1,000 in QBI. However, professional service firms, such as law and accounting practices, may continue to face limitations depending on their income level.
Action Items
- Confirm eligibility, especially for service-based businesses, which are excluded above certain income thresholds.
- Consider restructuring income or entity types to take full advantage of the deduction.
Full Expensing Restored Through Bonus Depreciation
The bill also restores 100% bonus depreciation for qualifying capital purchases placed in service after January 19, 2025. This allows businesses to immediately deduct the full cost of new equipment or property, rather than depreciating it over several years. Additionally, the Section 179 expensing limit has been raised from $1 million to $2.5 million, with the phase-out threshold starting at $4 million.
This change encourages investment by improving cash flow and may particularly benefit manufacturers, construction firms, and other capital-intensive industries.
Action Items
- Time equipment purchases to take advantage of full expensing.
- Update tax planning strategies with your CPA to model the impact on cash flow and taxable income.
R&D Expensing Reinstated and Expanded
For companies engaged in research and development, the OBBBA provides a long-awaited change: the ability to immediately expense domestic R&D costs instead of amortizing them over five years. Even more notable is the retroactive application of this provision for small businesses with less than $31 million in average annual revenue, allowing them to accelerate deductions for expenses incurred in 2022, 2023, and 2024.
While foreign R&D expenses must still be amortized over 15 years, the change offers a major incentive for domestic innovation.
Action Items
- Review R&D expenses from 2022 to 2024 to explore retroactive deductions.
- Amend previous returns or file for accelerated deductions over one or two years.
- Ensure documentation of qualifying research activities is in order.
More Favorable Business Interest Deductions
The OBBBA revises the calculation for interest expense deductions, reverting from EBIT to EBITDA. By allowing businesses to exclude depreciation and amortization from the limit calculation, companies with large capital investments will be able to deduct a greater share of their interest expenses. This provision is expected to significantly benefit industries such as manufacturing, real estate, and transportation, which often rely on financing.
Action Items
- Capital-intensive and debt-financed businesses should revisit interest deduction calculations.
- Work with a tax advisor to determine whether this increases your overall allowable deductions.
Tax Deductions for Tips and Overtime Pay
Perhaps the most headline-grabbing elements of the bill are the new above-the-line federal tax deductions for tip and overtime income, available from 2025 through 2028. Eligible workers earning under $150,000 (or $300,000 for joint filers) may deduct up to $25,000 in qualified tips and up to $12,500 in qualified overtime income.
These deductions are available to employees in designated tipped occupations and only apply to overtime pay mandated by the Fair Labor Standards Act (FLSA). Employers must begin reporting these amounts as separate line items on employees’ W-2 forms starting with the 2025 tax year. This will likely require new administrative protocols to ensure accuracy and compliance.
Action Items
- Monitor upcoming guidance from the Treasury and IRS for definitions and safe harbor rules.
- Educate payroll and HR staff on the reporting and compliance requirements.
Paid Family and Medical Leave Credit Made Permanent
The OBBBA makes the federal paid family and medical leave tax credit permanent, offering long-term support for employers who provide this benefit. Originally created under the Tax Cuts and Jobs Act, the credit allows eligible employers to claim up to 25% of wages paid to employees on qualifying leave.
The new law lowers the employee eligibility threshold from one year to just six months and expands the credit to include premiums paid for qualifying paid leave insurance policies. Additionally, employers can now claim the credit even if the leave is mandated by state or local laws, as long as they cover the cost.
This expansion offers greater flexibility for employers and ensures continued tax relief for those investing in employee well-being.
Action Items
- Review or implement written leave policies that meet eligibility criteria.
- Claim the credit for direct wages or premiums paid to qualifying insurance policies.
Enhancements to Employee Benefits
The OBBBA makes permanent the paid family and medical leave tax credit, originally established by the Tax Cuts and Jobs Act of 2017. In addition to the extension, the credit’s eligibility criteria are now more flexible, reducing the minimum employment tenure to six months and allowing employers to count state-mandated paid leave toward the requirement without reducing the available credit.
Employers can also now claim the credit for premiums paid toward qualifying paid leave insurance policies, making this benefit easier to implement for smaller businesses.
The law also expands the employer-provided child care tax credit. The maximum credit has been increased to $500,000 for larger businesses and $600,000 for small businesses, with higher reimbursement percentages. Employers may pool resources with other businesses or utilize third-party intermediaries to provide eligible childcare services, thereby opening new doors for innovative benefit solutions.
Student Loan Repayment and Other Fringe Benefit Changes
Another permanent change under the bill is the tax-free treatment of employer-provided student loan repayment assistance, which remains excluded from employee income up to $5,250 per year. The benefit will now be adjusted for inflation, ensuring its value remains stable over time.
Other fringe benefit updates include the elimination of the bicycle commuting reimbursement benefit and the continued suspension of moving expense deductions, except for active-duty military personnel or members of the intelligence community. Meanwhile, the meals and entertainment deduction remains at 50%, with a few expansions for meals in specific industries.
Opportunity Zones and Rural Investment Incentives
The Qualified Opportunity Zone (QOZ) program has been made permanent, with several revised eligibility requirements and enhanced reporting standards. New provisions also encourage rural investment through specialized Qualified Opportunity Funds, which offer up to a 30% increase in basis for deferred gains held over time.
While these changes create long-term incentives for capital investment in economically distressed areas, the compliance requirements are increasing, meaning businesses participating in the program will need to be diligent in tracking and reporting their investments.
Action Items
-
-
- If located in or operating within an Opportunity Zone, consider exploring investment incentives.
- Consider raising capital through Qualified Opportunity Funds (QOFs) to finance growth.
-
Your Business Action Plan
The OBBBA presents opportunities for cost savings, investment, and improved employee benefits. But it also demands action. Here’s how to prepare:
1. Schedule a meeting with your tax advisor.
Determine which new or enhanced deductions apply to your business, especially those retroactive to 2022–2024.
2. Review payroll and HR protocols.
Ensure you’re ready to report qualified tips and overtime compensation separately on employee W-2s starting in 2025.
3. Communicate benefit changes to your team.
Let employees know about student loan assistance, family leave, and new tax deductions that may reduce their 2025 tax liability.
4. Review your benefit offerings.
Update or create programs that qualify for enhanced tax credits, such as paid leave, childcare assistance, and education support.
5. Monitor IRS and Treasury guidance.
Expect clarification in the coming months regarding definitions, reporting requirements, and compliance procedures, particularly for tip and overtime deductions.
The One Big Beautiful Bill Act reshapes key areas of the tax code for businesses. While some provisions bring welcome relief, others require preparation and policy changes. By acting now, business owners and HR leaders can capitalize on this moment to gain a strategic advantage.