On July 4, 2025, the One Big Beautiful Bill Act (OBBB Act) was signed into law. This comprehensive legislation includes a wide range of tax and spending changes, with direct impacts on businesses, employees, and workplace benefits. Employers should be aware of several key updates, particularly those related to employee benefit programs and compensation. 

Below is a summary of the most important changes and how they may affect your organization. 

Tax Exemption for Tipped Employees 

As part of the OBBB Act, a new provision titled the No Tax on Tips Act was introduced, bringing several tax changes for tipped employees. 

New tax deduction for tipped workers
Starting in 2026, employees in tip-based roles can deduct up to $25,000 of reported cash tips from their taxable income, provided: 

  • The tips are received in an occupation that customarily receives them 
  • The tips are reported to the employer for payroll tax withholding 

This deduction does not apply to employees who earned more than $160,000 in the prior tax year (adjusted annually for inflation).

Overtime Tax Exemption for Employees 

The OBBB Act introduces a new federal income tax deduction on overtime pay to support working individuals. Beginning in 2025 and lasting through 2028, eligible employees can deduct up to $12,500 of annual overtime wages from their taxable income, or up to $25,000 for married couples filing jointly. To qualify for the full deduction, individuals must earn at least $15,000 annually, or $30,000 if married and filing jointly. 

While this deduction may reduce federal income tax owed, payroll taxes like Social Security and Medicare still apply to all overtime earnings. Employers should prepare to update payroll processes to track and report eligible overtime amounts so employees can claim the deduction during tax filing. 

Higher limits for dependent care FSAs
Effective January 1, 2026, the OBBB Act increases the annual contribution limits for dependent care flexible spending accounts (FSAs) to: 

  • $7,500 for single filers and married couples filing jointly 
  • $3,750 for married individuals filing separately 

These amounts are not adjusted for inflation. 

Extended student loan repayment support
Employers may continue providing tax-free student loan repayment assistance through educational assistance programs, beyond the previous 2025 expiration. The annual cap remains at $5,250 per employee, and this limit will be adjusted for inflation beginning in 2027. 

New savings program: Trump Accounts for children
The bill creates a new tax-advantaged savings account for children under age 18. Called “Trump Accounts,” these work similarly to IRAs. Contributions grow tax-deferred, with: 

  • A $5,000 annual contribution limit per child (adjusted for inflation beginning in 2028) 
  • Employers allowed to contribute up to $2,500 per year per child (also inflation-adjusted) 
  • A one-time $1,000 federal contribution for children born between 2025 and 2028 

These accounts are subject to written plan rules and annual compliance testing. 

Other Key Provisions 

  • Standard deduction increases: Raises standard deductions by $1,000 for individuals and $2,000 for married couples through 2028 
  • Social Security deduction: Increases standard deduction temporarily for individuals aged 65 and older 
  • Medicaid and SNAP updates: Adds new work requirements and more frequent eligibility checks for some recipients 
  • Clean energy credit changes: Ends several tax credits related to electric vehicles and clean energy production 

Next Steps for Employers 

With many provisions of the OBBB Act taking effect in 2026 (and some for the 2025 tax year), employers should begin planning now.  

Employers will need to ensure that they have pieces in place to accurately report tips and overtime premium pay on Form W-2 so employees can take those deductions. Helpside is working internally to prepare everything our clients will need to be in compliance.

The IRS has issued some guidance for employers and tax payers, but we expect even more information to be made available in the coming months and we will share that, and update this article as guidance becomes available.

If employees have questions about how the law impacts their personal taxes or what changes they should make to their Form W-4 as a result of the new law, we recommend they speak with a licensed tax professional. Form W-4 might also see some changes to account for the new tax deductions, but no announcements have been made by the IRS at this time.

Helpside will continue to provide updates and resources to help employers navigate these changes confidently. Need help navigating these changes or keeping your business compliant? Contact us at service@helpside.com