HR Impacts of the One Big Beautiful Act (OBBBA)
The “One Big Beautiful Bill Act” (OBBBA) was signed into law on July 4, 2025. This law impacts human resources practices in the areas of employee benefits, payroll operations, and HR compliance strategies. A few highlights of these changes include:
Tax Credits & Deductions for Employers
Paid Family and Medical Leave Tax Credit: This credit, available to eligible employers who provide paid leave, is made permanent. Congress first passed the temporary credit in 2017 as part of the Tax Cuts and Jobs Act. The credit, which was extended temporarily several times, allowed employers to claim a general business credit for offering PFML to eligible employees. The credit is worth 12.5% of the employee’s wages for a leave period and goes up by 0.25% for each percentage point of wages paid over 50%, up to 25%.
Employee-Focused Benefits
Tip and Overtime Deductions: New federal deductions for tips and overtime pay are available to employees, requiring employers to update their payroll systems for 2025. The OBBBA provides significant tax benefit for employees who work large amounts of overtime annually, however the law’s overtime deduction cannot exceed $12,500 per individual ($25,00 for joint filers) in any taxable year.
Expanded HSA Eligibility: The bill expands eligibility for health savings accounts (HSAs), which can be used for health and welfare benefits, but these plans are subject to non-discrimination testing. The changes allow more individuals to qualify for HSAs through the affordable Care act marketplace, and they also make it easier for those with high deductible health plans (HDHPs) to use specific healthcare services without losing their HSA eligibility.
Immigration Enforcement
Large budget increase: The new law provides a large increase in Immigration and Customs Enforcement’s (ICE’s) budget, which may critically impact specific industries.
Focus on worksite enforcement: The OBBBA allocates significant resources to increase I-9 audits, inspections, and other worksite enforcement actions.
How can HR professionals prepare for compliance with these changes?
Ensure payroll systems can accurately track and separately report tips and overtime pay, which are now tax-deductible for eligible employees under new W-2 formatting requirements.
Implement necessary adjustments to accommodate new deductions and payroll software workflows with a focus on flexibility and accuracy.
Collaborate with benefits providers to integrate changes to Health Savings Account (HSA) plans, enabling coverage for direct primary care services and pre-deductible telehealth starting in 2026.
Develop clear messaging for employees regarding tax-related impacts, including deductions on overtime and tips for those under eligibility thresholds.
Audit your I9 records for compliance.
Work closely with tax and legal advisors to navigate regulatory changes across payroll, benefits, and tax withholding systems.