Here’s how OBBBA impacts taxes, benefits, compliance, and your bottom line.

In a move aimed at simplifying tax structures and expanding access to benefits, Congress recently passed the One Big Beautiful Bill Act (OBBBA) as part of the 2025 budget reconciliation package. While the name might sound lighthearted, the provisions inside carry significant implications, especially for small business owners navigating today’s tight labor market, rising costs, and ever-shifting compliance requirements.

Link #1Link #1Link #1Link #1Link #1Link #1Link #1Link #1Link #1➡️ ➡️ Read More: The ROI of Employee Benefits

If you own or manage a small business, here’s what you need to know and how to prepare.

OBBBA Key Provisions & Next Steps

1. SOME PERMANENT TAX RELIEF 

The OBBBA locks in key provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. Most notably, it makes the 20% deduction for Qualified Business Income (QBI) under Section 199A permanent for pass-through entities like S-corporations, LLCs, partnerships, and sole proprietorships.

🏦Why it Matters: This change makes it easier for small business owners to plan for taxes, so they can make smarter decisions about hiring, reinvesting, and growing their business.

2. NEW TAX BREAKS FOR TIPPED WORKERS

Under OBBBA, qualified tip compensation is now deductible for eligible employees and self-employed workers, which is capped at $25,000 on qualified tips earned.

The deduction is available only for tips paid voluntarily and earned in tipped industries specified by the IRS.

Action Steps:

💰Update payroll systems to track and report qualified tips separately on Forms W-2 and 1099.

💰Identify tipped roles within your company that align with IRS-recognized occupations to ensure proper reporting.

💰Communicate these changes to employees.

💰Watch for updates and new guidance from the IRS.

3. OVERTIME PAY DEDUCTION

For overtime, the new law creates a deduction from gross income for premium pay for overtime hours worked.

The deduction is capped at $12,500 and applies only to the premium pay defined under Section 7 of the Fair Labor Standards Act (FLSA). 

Action Steps:

🕛Update payroll systems to reflect the change.

🕛Report qualified overtime separately on Forms W-2 and 1099. 

🕛Communicate these changes to employees.

🕛Watch for updates and new guidance from the IRS.

4. NEW CHANGES TO 1099 REPORTING 

For payments made after Dec. 31, 2025, the threshold for reporting payments for Form 1099 MISC or NEC has been raised from $600 to $2,000.

🏦What it Means for Employers:  The change eliminates additional paperwork and reporting for smaller payments. Employers should update their accounting systems to reflect the new threshold change.

5. EXPANDED HEALTH SAVINGS ACCOUNT (HSA) ELIGIBILITY

Under OBBA, bronze-level and catastrophic plans now qualify as high-deductible health plans (HDHPs), allowing more employees to use Health Savings Accounts (HSAs).

⚕️What You Should Do:  Review your current employee health plan. With these updates, you can give your team more options and make your benefits package even more appealing.

6. ENHANCED FAMILY BENEFITS 

OBBBA introduces several measures to support working families and incentivize businesses to do the same:

👨‍👩‍👦Dependent Care Flexible Spending Account (FSA) Increase. The annual maximum contribution limit for employer-provided, dependent care FSAs increases from $5,000 to $7,500 for single filers and married couples filing jointly, and from $2,500 to $3,750 for married individuals filing separately. The increase goes into effect for plan years beginning on or after January 1, 2026. 

Prepare by:  Employers planning to offer the new $7,500 limit under their FSA programs should update their benefits documents and other materials as needed, revise participant communications, and contact their dependent care FSA third-party administrator. In addition, confirm that all nondiscrimination testing requirements under Section 129 of the IRS are complete.

👨‍👩‍👦 Expanded Childcare Tax Credit.  The employer credit increases to $500,000 (from $150,000), with small businesses eligible for a higher reimbursement of up to 50% of childcare costs.

Prepare by: Prepare communication to educate employees about new family benefits.

👨‍👩‍👦Tax-Deferred Accounts for Employees’ Children. These tax-deferred accounts allow employer contributions of up to $2,500 annually per child (for births in 2025–2028).

Prepare by: To participate, businesses must adopt the plan documents and comply with nondiscrimination rules. 

➡️ ➡️ Read More: Are Your Benefits Keeping Up With the Competition?

7. MOVING EXPENSES BECOME TAXABLE 

Employer-paid moving expenses are no longer tax-exempt, except for military and intelligence personnel. If you offer relocation packages, you'll now need to treat them as taxable income.

📦How it Impacts Employers: Discuss tax implications with candidates or employees receiving relocation perks. 

8. INCREASED IMMIGRATION ENFORCEMENT 

OBBBA includes stricter I-9 audits, higher fees, and expanded enforcement of worksite compliance. 

Prepare by:

🛡️Conduct an internal audit of I-9 forms and immigration records.

🛡️Stay current on new changes to immigration processes and documents.

🛡️Develop a plan to handle potential inspections or enforcement actions.

🛡️Expect higher costs and potential delays to secure or renew work authorizations for employees from other countries.

Start Planning Now

Most of the OBBBA’s provisions take effect after December 31, 2025, but the time to prepare is now.

Start by:

💼Reviewing your Employee Benefit Plans and Payroll Systems. Ensure accuracy and make necessary adjustments to comply with new regulations.

💼Consulting with Tax, Legal, Payroll, HR, or your PEO professionals. Ensure compliance and maximize cost-saving opportunities.

💼 Communicating New OBBA Changes with Your Teams.  

The OBBBA offers a rare opportunity for small businesses to secure tax relief, offer expanded benefits, and stay competitive in attracting top talent. By acting now, you can turn these new changes into a business advantage.

And if you need help, just give us a call at (800) 446-6567 or visit propelhr.com

PLEASE NOTE: This information is for general reference purposes only. Because laws, regulations, and filing deadlines are likely to change, please check with the appropriate organizations or government agencies for the latest information and consult your employment attorney, tax and/or benefits advisor regarding your responsibilities. In addition, your business may be exempt from certain requirements and/or be subject to different requirements under the laws of your state. (Updated July 31, 2025)

PREPARING FOR RENEWAL

As healthcare costs continue to rise, employees want — and expect — benefits that reflect their values and needs. So, before you renew or make changes to your employee benefits program, check out our 2025 Benefits Benchmark Report. 

You’ll learn:

🌐How national and regional trends are reshaping benefits

🌐What today’s workforce really wants

🌐How your benefits compare to the competition — and where you may be overspending

🌐Smart strategies for cost control and talent retention

Don’t Guess — Get the Data!

Watch the 2025 Benefits Benchmark Report ▶️HERE

If you need help making sense of your options, call us at (800) 446-6567 — we're here to help.

About Propel HR. Propel HR is an IRS-certified PEO that has been a leading provider of human resources and payroll solutions for 25 years. Propel partners with small to mid-sized businesses to manage payroll, employee benefits, compliance and risks, and other HR functions in a way that maximizes efficiency and reduces costs. For more information, visit propelhr.com