This article is Part Two of a multi-part analysis by KJK that will continue to summarize the OBBBA’s implications on various taxpayers and industries.

Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) introduces several changes affecting workplace tax treatment and employee benefits.

Below is a breakdown of the most relevant provisions for employers and employees.

Key Workplace Provisions

OVERTIME AND TIPS DEDUCTION

Starting with 2026 returns, employees earning overtime or tip income in 2025 may deduct up to $25,000 of that income from their federal taxable income. The benefit phases out starting at $150,000 for single filers and $300,000 for joint filers. This provision is set to expire after the 2028 tax year.

KJK Take: Offering access to these deductions could make jobs in the hospitality sector more attractive to potential and current employees. Employers in industries with tipped or hourly workers, such as servers, bartenders, hotel staff, hairstylists, etc., should review payroll systems and employee education materials now.

ENHANCED PAID FAMILY AND MEDICAL LEAVE TAX CREDIT

The OBBBA makes the Section 45S credit permanent and allows employers to calculate the credit based on either wages paid during leave or premiums paid for qualifying insurance coverage. It also expands eligibility to employees with at least six months of service and adjusts aggregation rules for related employers.

KJK Take: These changes offer  flexibility and new planning opportunities. Employers should assess which credit method best aligns with their structure and consider whether to expand leave benefits to capture the full advantage.

DEPENDENT CARE FSA LIMIT INCREASED TO $7,500

Starting in 2026, the annual contribution limit for Dependent Care Flexible Spending Accounts has been permanently raised from $5,000 to $7,500.

KJK Take: Employers offering FSAs will need to update plan documents and employee onboarding materials. This provision may appeal to working parents and caregivers, making it a strong retention and recruitment benefit.

ENHANCED EMPLOYER CHILDCARE TAX CREDIT

The maximum annual credit for employer-provided childcare has been  raised  from $150,000 to $500,000, and the percentage of qualifying expenses covered has been increased from 25% to 40%. This significantly increases the tax benefit for companies that support employee childcare needs.

KJK Take: Employers with on-site childcare programs or third-party childcare partnerships should reassess participation and funding levels. Those without programs may want to explore third-party partnerships or subsidies to take advantage of this opportunity.

STUDENT LOAN ASSISTANCE TAX EXCLUSION MADE PERMANENT

Employer-paid student loan contributions are now permanently excluded from taxable income for employees, up to the current $5,250 cap.

KJK Take: This benefit has proven popular among early-career employees and young professionals. Making the exclusion permanent gives employers a clearer runway to build and promote these programs as part of compensation and benefits offerings.

ADOPTION ASSISTANCE EXCLUSION MADE PERMANENT

Tax exclusions for employer-provided adoption assistance have been made permanent, providing continued support for families growing through adoption.

KJK Take: While adoption assistance remains a niche benefit, it is highly valued by employees and aligns with broader efforts to support working families and reduce financial strain.

HSA EXPANSION: TELEHEALTH & DIRECT PRIMARY CARE

High-deductible health plans (HDHPs) tied to HSAs may now permanently cover pre-deductible expenses for telehealth services and, beginning in 2026, certain direct primary care (DPC) arrangements. HSA eligibility will also expand to include individuals enrolled in bronze and catastrophic plans through the ACA Marketplace.

KJK Take: Employers should coordinate with plan providers to ensure compliant integration of these services. Promoting this update could increase employee engagement in HSAs and reinforce employer support of preventative and convenient care.

1099 REPORTING THRESHOLD INCREASED TO $2,000

The threshold for issuing IRS Form 1099-NEC or 1099-MISC has been raised from $600 to $2,000.

KJK Take: This change significantly reduces administrative burdens for employers and HR teams issuing smaller payments to independent contractors and gig workers. Employers should update accounting systems and vendor intake procedures to reflect the new threshold.

Looking Ahead

The OBBBA’s workplace provisions offer both compliance challenges and strategic opportunities for employers in 2025 and beyond. Employers should begin reviewing payroll, benefits, and compliance systems now to prepare for these updates.