Bottom Line Up Front: The One Big Beautiful Bill Act, signed into law on July 4, 2025, delivers the most significant tax and policy changes since 2017. While it provides substantial tax relief through permanent individual tax cuts and new deductions for tips and overtime, it also reshapes healthcare funding and requires immediate payroll system updates for compliance.
The One Big Beautiful Bill Act (OBBBA) brings extensive changes for employers, employees, and families. Its provisions directly impact payroll, benefits, and tax obligations—adding layers of compliance complexity. New tax regulations and significant shifts in healthcare and public benefits mean organizations need to adapt quickly to maintain compliance.
At Lift HCM, we're committed to helping employers understand these changes. This article breaks down the key provisions of the OBBBA, so you can understand what’s changing, what it means for your financial planning and workforce management, and what to expect moving forward for your business.
🚨 Key Takeaways for Employers
✓ Immediate Action Required: Payroll systems must be updated to handle new tip and overtime deductions immediately for 2025.
✓ Permanent Tax Relief: Individual tax cuts from 2017 are now permanent, providing long-term planning stability.
✓ New Deductions: Employees can now deduct tips (up to $25,000) and overtime pay (up to $12,500/$25,000).
✓ Healthcare Impact: Significant Medicaid cuts may increase reliance on employer-sponsored health plans.
✓ Compliance Complexity: New reporting requirements and thresholds take effect across multiple tax years.
Table of Contents
The OBBBA represents a centerpiece of the administration's agenda, enacted through budget reconciliation to avoid Senate filibuster rules. The legislation addresses multiple priorities simultaneously:
Tax Policy: Permanent extension of 2017 tax cuts plus new deductions
Healthcare: Nearly $1 trillion in Medicaid cuts over 10 years
Immigration: $150 billion investment in border security and enforcement
Energy: Shift from clean energy incentives to fossil fuel support
Infrastructure: Strategic investments in air traffic control and manufacturing
The bill is projected to add an estimated $3 trillion to the national debt over the coming decade and cut an estimated $4.46 trillion in federal tax revenue over 10 years due to the various tax adjustments and exemptions.
Description: The individual income tax cuts from the 2017 Tax Cuts and Jobs Act (TCJA), which were previously set to expire in 2025, are now permanent. This ensures stability in the current tax bracket structure for many years to come.
Impact: Most taxpayers can expect stable, lower tax brackets moving forward, providing greater predictability in personal financial planning. For employers, this means fewer future adjustments related to individual tax withholding schedules due to expiring provisions.
Employer Implication: Payroll systems will need to reflect these permanent rates, but this overall stability simplifies long-term tax planning for compensation.
Description: Workers earning less than $150,000 per year can now claim above-the-line deductions for qualified tips and overtime pay through 2028. This temporary measure is designed to provide immediate financial relief to a significant portion of the workforce.
Tips Deduction: Up to $25,000 annually for employees in industries recognized by the IRS as "customarily and regularly receiving tips" as of December 31, 2024.
Overtime Deduction: Up to $12,500 (single) / $25,000 (joint) for FLSA-qualified overtime.
Income Limits: Both deductions phase out for modified adjusted gross income over $150,000 ($300,000 joint).
Important: Social Security and Medicare taxes still apply to both tips and overtime.
Impact: This provision could lead to a significant increase in take-home pay for hourly workers and service employees, particularly in industries where tips and overtime are common.
Employer Implication: Payroll systems must adjust to track and report qualified tips and overtime separately under specific thresholds, requiring careful configuration and potential system updates to ensure accurate withholding and compliance. This change also necessitates clear communication to employees regarding their adjusted take-home pay.
💡 Key Implementation Note
Payroll systems must be updated immediately to track and report qualified tips and overtime separately under specific thresholds for 2025 compliance.
| Deduction Type |
Max. Annual Deduction |
Effective Dates |
Phase-Out Start (Modified AGI) |
FICA Taxes Still Apply? |
Above-the-Line Deduction? |
| Qualified Tips | $25,000 | Jan 1, 2025 – Dec 31, 2028 | $150,000 | Yes | Yes |
| Qualified Overtime (Single Filer) | $12,500 | Jan 1, 2025 – Dec 31, 2028 | $150,000 | Yes | Yes |
| Qualified Overtime (Joint Filer) | $25,000 | Jan 1, 2025 – Dec 31, 2028 | $300,000 | Yes | Yes |
Important: Tips deduction applies only to employees in industries recognized by the IRS as "customarily and regularly receiving tips" as of December 31, 2024. Overtime deduction applies to FLSA-qualified overtime only. Both deductions phase out for modified adjusted gross income over the specified thresholds.
Description: The Child Tax Credit increases permanently by $200 per child, providing additional financial support to families.
Impact: This represents a modest but meaningful financial benefit for families with children, potentially improving their overall financial wellness.
Employer Implication: While direct employer action isn't required, HR departments may consider including this information in financial wellness communications or benefit statements to help employees understand available resources.
Description: The deduction for state and local taxes (SALT) is raised to $40,000 for those earning less than $500,000. This cap is set to revert to $10,000 after five years.
Impact: This offers temporary relief for taxpayers in high-tax states, allowing them to deduct a larger portion of their state and local tax payments.
Employer Implication: Employers, especially those with employees in high-tax states, might find this relevant for high-earning staff. This could be a point of discussion for financial wellness benefits or tax advisory services offered to employees.
Description: The OBBBA allows for up to $10,000 per year in interest deductions for loans on vehicles assembled in the U.S. This provision is phased out after 2028.
Impact: This serves as an incentive to buy American-made vehicles and can help reduce vehicle financing costs for eligible taxpayers.
Employer Implication: While not a direct payroll impact, it's a new tax benefit that some employees may inquire about, and HR teams could consider including it in broader financial literacy programs.
Description: The bill introduces new tax-deferred savings accounts specifically designed for children. These accounts aim to provide a long-term savings vehicle for future educational or financial planning.
Impact: This provides families with a new tool for long-term educational or financial planning, potentially shifting how parents save for their children’s futures.
Employer Implication: Employers may need to update financial wellness programs, dependent benefits information, or educational resources to inform employees about this new savings vehicle and its implications.
Description: A new 1% tax is imposed on money sent abroad, affecting international financial transfers.
Impact: This will result in higher transaction costs for immigrant families and cross-border workers who regularly send money internationally.
Employer Implication: Businesses with a significant international workforce may find this impacts employee satisfaction and financial planning. Payroll or HR may receive questions regarding this new cost.
The OBBBA significantly alters federal funding and requirements for critical social programs.
Description: Work requirements for the Supplemental Nutrition Assistance Program (SNAP) are expanded, and partial state funding is now required for the program.
Impact: This will likely increase the administrative burden for states administering SNAP and could lead to potential loss of access for some recipients, impacting food security for vulnerable populations.
Employer Implication: Organizations offering employee support services or those with a workforce that might rely on public assistance should be aware of these changes. Expanded SNAP and Medicaid rules will require employers to be aware of and cooperate with state-level systems, especially for organizations offering employee support services or wellness programs.
A substantial investment has been allocated to bolster border security measures.
Description: The OBBBA allocates massive investments to Immigration and Customs Enforcement (ICE), the completion of the border wall, and the hiring of thousands of new border agents.
Impact: This represents the largest border enforcement expansion in U.S. history, with potential implications for immigration policies and workforce demographics.
Employer Implication: Businesses that employ immigrant workers or rely on cross-border operations should monitor ongoing developments and be prepared for potential shifts in immigration policies or workforce availability.
The bill also includes major shifts in national priorities regarding energy and economic stability.
Description: The law eliminates many clean energy incentives from the Inflation Reduction Act and actively promotes oil, gas, and coal production.
Impact: This represents a significant policy pivot back to traditional energy sources, with long-term implications for environmental policy and energy markets.
Employer Implication: This may affect businesses in the energy sector or those with significant energy consumption, influencing operational costs and sustainability initiatives.
Description: The OBBBA authorizes new borrowing to fund its various provisions, leading to a substantial increase in the national debt ceiling.
Impact: While this ensures short-term funding stability for the government's initiatives, it also contributes to a higher national debt.
Employer Implication: This is a broader economic factor that can influence interest rates and the overall economic climate, which businesses should keep in mind for long-term financial planning.
Description: The bill includes $12.5 billion to modernize air traffic control systems and significant funding for advanced semiconductor manufacturing.
Impact: These investments aim to support critical industries and enhance U.S. competitiveness in key technological and infrastructural sectors.
Employer Implication: Businesses in aerospace, technology, or manufacturing may see direct benefits from these investments through increased contracts, workforce development programs, or supply chain stability.
Understanding these shifts is crucial for maintaining compliance and supporting your workforce. At Lift HCM, we're already addressing common questions from clients, such as:
How will the tax changes affect payroll?
Answer: Payroll systems must adjust to deduct qualified overtime and tips under specific income thresholds, as well as incorporate permanent individual income tax rates. This will require collaboration with your payroll provider to ensure accurate and compliant processing and reporting on W-2 forms.
Do we need to adjust benefit plans?
Answer: Yes, employers may need to update financial wellness programs, dependent benefits information, or educational resources in light of Trump Accounts and other new tax tools. Employees may look to their employers for guidance on navigating these new savings opportunities.
What about compliance considerations?
Answer: Expanded SNAP and Medicaid rules will require employers to be aware of and cooperate with state-level systems, especially for organizations offering employee support services or benefits navigation. Staying informed about state-specific impacts will be crucial.
Who is affected most, and how does that impact our workforce strategy?
Answer: Hourly and tipped workers, families with children, states with high local taxes, and Medicaid recipients will all experience significant impacts. Understanding these affected groups can help HR departments tailor internal communications, financial wellness initiatives, and support resources to proactively address employee needs.
Before the OBBBA, many were uncertain if the 2017 tax cuts would expire and whether public benefit programs were on stable footing. Now, with the One Big Beautiful Bill Act, it's clear that the U.S. tax system has been reshaped, social program funding significantly altered, and sweeping changes made to border security and energy policy.
What's next for your organization? It's crucial to start preparing for 2026 and beyond by ensuring your payroll and HR policies are updated to reflect these new rules, thereby avoiding compliance penalties and ensuring employee satisfaction. Proactive planning is key to seamlessly integrating these changes into your operations.
Lift HCM is your unbiased voice in payroll and HR—here to help you navigate the OBBBA and beyond, ensuring your business stays compliant and your employees are well-supported.
Important Disclaimer: This analysis is based on current law and available guidance. Tax law is complex and subject to ongoing regulatory interpretation. Consult with qualified tax professionals and legal counsel for advice specific to your situation.
Sources:
H.R.1 - 119th Congress (2025-2026): One Big Beautiful Bill Act