What the “One Big Beautiful Bill Act” Could Mean for Your Agency and Families

July 2025

The recently enacted “One Big Beautiful Bill Act” (OBBBA) has ushered in a wave of significant tax changes, and for nanny agency owners, understanding the nuances of this legislation is crucial for advising your families and managing your business.

This bill, signed into law on July 4, 2025, addresses a range of issues, including overtime pay and the reporting of payments by household employers.

I wanted to share with you some of the key provisions and their potential impact on your agency and the families you serve.

The Enhanced Child Tax Credit

Perhaps one of the most significant changes for the families you serve is the substantial expansion of the Child Tax Credit (CTC). The OBBBA has increased the credit amount and made it fully refundable, meaning families can receive the full benefit regardless of their income tax liability.

Key Changes to the Child Tax Credit:

Increased Credit Amount
The credit has been raised from $2,000 to $2,200, providing more financial support for each qualifying child.

Full Refundability
The refundable portion jumps from $1,400 to $1,700 starting in the 2025 tax year.

Monthly Payments
The new law directs the IRS to establish a system for periodic, likely monthly, advance payments of the credit. This provides a steady and predictable income stream for families throughout the year, which can greatly assist with budgeting for regular expenses, such as childcare.

The increased and consistent financial support from the enhanced CTC will directly impact a family’s ability to afford quality childcare. It can make a significant difference for families on the fence about hiring or retaining a nanny. In your client consultations, highlighting this new financial resource can be a powerful tool in demonstrating the affordability of in-home care.

A Lighter Tax Burden on Overtime for Nannies

One of the most talked-about elements of the new law is the change to how overtime wages are taxed. The OBBBA introduces a new federal income tax deduction for “qualified overtime” pay. This means that nannies and other household employees can now deduct a portion of their overtime earnings from their federal taxable income.

However, it’s essential to understand the limitations. This is a deduction, not a complete elimination of taxes on overtime. The deduction is capped at $12,500 ($25,000 in the case of a joint return), and there are income limitations for the employee. The amount is reduced by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income exceeds $150,000 ($300,000 for joint filers). Furthermore, this change only applies to federal income tax. Both employers and employees are still responsible for paying Social Security and Medicare (FICA) taxes on all wages, including overtime.

This can be a selling point when discussing compensation with potential nannies. It effectively increases their take-home pay from overtime hours. When advising families on employment costs, you can highlight this new benefit for their employees, making overtime shifts more attractive.

Changes to 1099-K Reporting

There has been some confusion for small businesses and individuals regarding the reporting requirements for third-party payment platforms. The OBBBA repeals the American Rescue Plan Act’s provision that lowered the reporting threshold for Form 1099-K to $600 and reinstates the $20,000 and 200 transactions thresholds for required reporting, retroactive to 2022.

The bill also raises the reporting threshold for Form 1099-MISC, which is used to report payments to independent contractors, from $600 to $2,000.

While this simplifies payment processes for families who may use apps like Venmo or PayPal to pay their nannies, proper classification of a nanny as a household employee (W-2) versus an independent contractor (1099) remains a critical compliance issue. It’s a good opportunity to remind your families of the importance of correct worker classification.

Impact on High-Net-Worth Clients

The new legislation brings substantial changes that will affect your high-net-worth families, potentially influencing their ability to afford and structure household employment. Key changes include:

Increased State and Local Tax (SALT) Deduction
The cap on the deduction for state and local taxes has been temporarily increased from $10,000 to $40,000. This will provide some tax relief to families in high-tax states, potentially freeing up more disposable income. The cap will increase by one percent each year through 2029 before reverting to the $10,000 cap.

Higher Estate Tax Exemption
The bill dramatically increases the federal estate tax exemption to a base amount of $15 million for decedents dying in 2026, and it is then adjusted for inflation in subsequent years. This is the amount an individual can leave to their heirs without incurring federal estate tax. This change offers considerable tax savings for wealthy families, impacting their long-term financial planning. With less of their assets earmarked for potential estate taxes, families may have more liquidity and confidence in their ability to fund long-term household employment.

Adjustments to Charitable Deductions
The rules around deductions for charitable contributions have also been modified.

These changes may make employing a nanny more financially attractive for high-net-worth families. When marketing your services to this demographic, understanding these financial shifts can help you tailor your approach and demonstrate the value your agency provides in navigating the complexities of household employment.

Will This Bill Encourage More Tipping?

Another aspect of the OBBBA is the introduction of a federal income tax deduction for qualified tip income. This means that tips received by household employees, such as drivers, may be partially deductible on their federal income tax returns.

While the employer’s direct cost of tipping remains unchanged, this new tax benefit for the employee could have an indirect effect. By increasing the net value of a tip to an employee, it could encourage families to be more generous. Families who were previously hesitant to offer tips due to the tax implications for their employees may now see it as a more impactful way to show appreciation.

Final Thoughts

The OBBBA legislation could have far-reaching implications. For nanny agency owners, staying informed is the first step in guiding your families and supporting your nannies through these changes. By understanding the specifics of these new tax provisions, you can position your agency as a knowledgeable and indispensable resource in the evolving landscape of household employment.

Read a more in-depth analysis of the new bill’s impact on household employers.

Remember that GTM is here for you and your clients as a resource for all matters related to household payroll, timekeeping, human resources, benefits, and insurance. Contact us with questions or to request information.