What the One Big Beautiful Bill Act Means for Household Employers and High-Net-Worth Families

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), a sweeping and ambitious tax package that brings both permanence and change to major areas of the tax code.

For household employers and high-net-worth families, the impact is significant.

From expanded deductions and estate tax certainty to new payroll reporting obligations and planning opportunities, OBBBA reshapes the financial landscape in ways that deserve close attention.

Let’s break down the most relevant provisions and outline the steps you should take now to prepare.

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.

Expanded Deductions for Overtime

One of the most talked-about provisions in OBBBA is the introduction of temporary, above-the-line tax deductions for employee tip income and FLSA-mandated overtime pay.

The OBBBA establishes a new above-the-line tax deduction for qualified overtime compensation. The OBBBA defines “qualified overtime compensation” as overtime compensation paid to an individual required under
the Fair Labor Standards Act (FLSA) that is in excess of the regular rate at which the individual is paid.

As a reminder, household employees are protected by the FLSA and must be paid an overtime rate of at least one and a half times their regular rate for hours worked over 40 in a workweek. Some state overtime laws vary. While live-in employees are exempt from the FLSA overtime pay provisions, some states require overtime pay for live-in domestic workers. However, the OBBBA provision only applies to federal overtime.

The maximum deduction for overtime income is capped at $12,500 per year ($25,000 per year if married filing jointly). The deduction decreases for those earning over $150,000 per year.

Employers must include the total amount of qualified overtime compensation as a separate line item on employees’ Form W-2. Individuals must include their Social Security number (and, if married and filing jointly, their spouse’s Social Security number) on their tax return to receive the deduction. Clients of GTM Payroll who sign up for our year-end tax package will receive Form W-2s that are compliant with this new rule.

Employers should not attempt to artificially boost employee access to deductions by restructuring their pay. Abuse of these rules may invite audits and penalties.

Expanded Deductions for Tips

The OBBBA creates a new above-the-line tax deduction for qualified tips. Individuals must earn $150,000 or less ($300,000 if married filing jointly) in 2025 to be eligible for the tip deduction. The maximum deduction for tip income is capped at $25,000 per year, and the deduction only applies to cash tips, which include tips that are charged and tips received under a tip-sharing agreement.

To be considered a qualified tip, the tip must be paid voluntarily without any consequence in the event of nonpayment, not be subject to negotiation, and be determined by the payor.

To qualify for the tip deduction, individuals must work in occupations where receiving tips is customary (e.g., servers, bartenders, hotel staff, hairstylists) on or before Dec. 31, 2024. The Treasury Department will publish a list of qualifying occupations within 90 days of the OBBBA’s enactment. This may apply to household staff in service-oriented positions, such as a private driver.

The OBBBA does not change the requirement that employees and employers report all tips to the IRS. Individuals must include their Social Security number (and, if married and filing jointly, their spouse’s Social Security number) on their tax return to receive the deduction.

Paying for Services Through Mobile Apps Like Venmo

The OBBBA removes the proposed requirement that payment apps (such as Venmo and PayPal) issue a 1099-K for all service payments (including those made to a household employee) exceeding $600. That requirement initially came from the American Rescue Plan Act in 2021. OBBBA specifically repeals that tax-reporting rule for third-party settlement organization (TSO) transactions.

The 2025 threshold for reporting payments remains at $2,500. It drops to $600 in 2026.

The OBBBA does not immediately change how Venmo and other TSOs, as well as the IRS, handle 1099-K reporting for service payments.

GTM recommends that families employing household help, such as nannies, in-home senior caregivers, and housekeepers, avoid using mobile payment platforms to pay their workers. To help ensure compliance with tax and wage laws, the best ways to pay your household employee are through direct deposit or with a paper check.

Estate Planning Becomes More Predictable

For years, high-net-worth families have been planning around the looming expiration of the elevated estate and gift tax exemptions. OBBBA provides relief by making the $15 million per person exemption permanent and indexing it for inflation starting in 2026. That means wealthy individuals and couples can pass significantly more wealth to their heirs, either during their lifetime or at death, without triggering federal estate or gift tax.

This permanence brings much-needed clarity to estate planning. Families with complex holdings such as real estate, private businesses, or family trusts should consider revisiting their strategies to ensure they’re making the most of this generous exemption.

SALT Deduction Cap Raised (For Now)

In a major change, the state and local tax (SALT) deduction cap is increased from $10,000 to $40,000 starting in 2025. That cap will rise by 1% per year through 2029, before reverting to $10,000 in 2030. This is particularly impactful for families in high-tax states, such as New York, California, or New Jersey, where property and income taxes often exceed the previous deduction limit.

For those earning more than $500,000 in modified adjusted gross income, the increased deduction begins to phase down, but never below $10,000. This provision offers a valuable planning opportunity over the next few years to offset taxable income through careful timing of tax payments and charitable giving.

Standard Deduction Increases and the “Senior Bump”

The standard deduction increases to $15,750 for single filers and $31,500 for joint filers in 2025, with inflation indexing to be applied going forward. In addition, seniors aged 65 and older receive a new $6,000 “bump” ($12,000 for couples), which applies regardless of whether they itemize deductions. This temporary benefit, available through 2028, phases out for incomes above $75,000 for singles and $150,000 for couples.

Combined with the removal of personal exemptions and the expansion of tax brackets from the 2017 tax law (now made permanent), these provisions will reduce taxable income for many retirees.

Mortgage and Auto Loan Interest: Rules Set in Stone

OBBBA makes permanent the mortgage interest deduction on up to $750,000 in acquisition debt, confirming a rule that was set to expire. It also introduces a new, temporary deduction for interest on personal auto loans, up to $10,000, if the car is assembled in the U.S. and meets other requirements. This provision will be available through 2028 and will phase out for higher earners.

529 Plans Get More Flexibility

Starting in 2026, families can withdraw up to $20,000 per year from 529 plans for K-12 tuition and qualified education expenses, including licensing and certification programs. This expansion increases the previous $10,000 limit, opening up new education planning options for private school tuition or vocational training.

Charitable Giving Incentives and Limitations

Beginning in 2026, taxpayers who don’t itemize will be allowed to deduct up to $2,000 ($1,000 for single filers) in charitable donations. However, itemizers face a new limitation: 0.5% of modified AGI will be subtracted from their eligible deduction. Families considering large gifts should explore accelerating donations into 2025 to maximize tax benefits.

ABLE Accounts and Special Needs Planning

Families with disabled dependents can now contribute up to $19,000 annually to ABLE accounts, with contributions qualifying for the Saver’s Credit. This change, now permanent, enables families to save more while maintaining eligibility for government benefits, such as Medicaid.

Key Action Items

For High-Net-Worth Families:

• Revisit estate and gift plans now that the $15M+ exemption is permanent.
• Evaluate the timing of large charitable contributions before new limits take effect in 2026.
• Coordinate with advisors on whether to accelerate income or deductions based on phaseouts and eligibility windows.
• Take advantage of the higher SALT deduction cap while it lasts.

For all Taxpayers:

• Monitor your AGI to preserve eligibility for deductions (tips, overtime, auto loan interest, senior bump, etc.).
• Consider refinancing or structuring auto loans to qualify for the new deduction.
• Explore expanded use of 529 plans and ABLE accounts in long-term financial planning.

The One Big Beautiful Bill Act brings a wave of changes, but it also offers clarity and new opportunities. For families managing significant wealth or employing household staff, now is the time to work with your financial advisors and estate planners to realign your strategies and ensure compliance.

With proper planning, you can maximize benefits and avoid costly mistakes.

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