The One Big Beautiful Bill Act (OBBBA) created a wave of legislative change and employers are now faced with interpreting what it all means for their people, policies, and benefit offerings.
Our recent LinkedIn Live featured 1RDG’s COO, Cory Raggi, alongside Partner Kate Kenney and Jeff Nagel, Senior Director of Benefits, broke down how the bill impacts businesses. From payroll and compliance to recruiting strategy and family-focused benefits, there’s a lot to consider and some of it takes effect as soon as 2025.
Here’s what you need to know.
Payroll & Compliance: New Rules for Hourly and Tipped Employees
The bill introduces deductions for both overtime and tip income and while these deductions may sound like tax relief for employees, they require significant tracking and reporting on the employer’s side.
Overtime Pay Deduction:
- Employees can deduct up to $12,500 (single) or $25,000 (married) in qualified overtime income.
- A new box will be added to the W-2 to reflect this, and employers must track overtime separately.
- Employers that outsource payroll should confirm that their provider will be compliant with this update.
Tip Income Deduction:
- Employees may deduct up to $25,000 in reported tips, and there is a phase-out for higher earners.
- Applies to both cash and credit card tips but does not eliminate FICA or state tax obligations.
- Employers should proactively explain this to tipped workers to prevent confusion about take-home pay.
Pro Tip:
Kate noted, “It’s business as usual for now, but employees will see the impact of these deductions when they file their taxes. That’s why accurate reporting throughout the year will be essential.”
Increased Scrutiny: I-9s and Immigration Compliance
The ICE budget has tripled, signaling a likely increase in worksite audits, particularly in construction, hospitality, agriculture, and retail.
What to do now:
- Audit your I-9s and ensure documentation is in order.
- Review your immigration protocols.
- Develop a response plan in case of an inspection.
Pro Tip:
“Being prepared is your best defense,” Kate advised. “These audits are real, and they’re already happening.”
ERC Enforcement: Lookback Period Extended
While the Employer Retention Credit (ERC) program is not new, OBBBA reinforces the IRS’s focus on retroactive enforcement.
- No new ERC claims will be accepted after January 31, 2024.
- Penalties for questionable ERC filings can reach up to $200,000.
- Six-year lookback window: Employers should retain documentation for all ERC claims.
If you used a third-party provider, ensure you have a copy of their supporting documentation in your records.
Medicare, Medicaid & Exchange Shifts: Mid-Year Enrollment Risk
Jeff outlined how several changes to public health programs could cause employees to lose coverage and turn to their employer for enrollment even outside of open enrollment windows.
Key changes:
- Medicaid recertification now occurs every 6 months (instead of annually).
- New work requirements for Medicaid eligibility may disqualify non-compliant individuals.
- Exchange subsidies are being phased back to pre-Biden levels, impacting affordability.
- Annual re-enrollment will be required for all exchange plans (no more automatic renewals).
Pro Tip:
“Employers should expect more mid-year benefits requests and need to be ready to process them,” Jeff explained.
HSA & Telehealth Updates
The bill reinstates key provisions related to telemedicine and expands access under specific conditions.
- Telehealth visits no longer disqualify individuals from HSA eligibility — even without cost sharing.
- Direct primary care memberships can be paid with pre-tax HSA accounts but must be under $150/month (individual) or $300/month (family).
- Bronze & catastrophic exchange plans now automatically qualify for HSA use (mostly applicable to individuals).
Employers should confirm their health plans still meet HSA requirements and educate employees on these options.
Dependent Care FSAs: Higher Limits Coming
For the first time in decades, the dependent care FSA limit is increasing:
- FSA increase from $5,000 to $7,500 for married filing jointly (effective 2026).
- Employers must update plan documents and ensure payroll systems reflect the change.
Pro Tip:
Jeff emphasized this can be especially meaningful for working parents managing childcare costs.
Student Loan Repayment Benefits: A Tool for Retention
Section 127 benefits were set to expire, but the bill makes them permanent.
- Employers can contribute up to $5,250 per year per employee toward student loan repayment.
- Must be a formal plan, offered broadly (not selectively).
- Strong compliance documentation is required.
Pro Tip:
“This could become a key differentiator in recruiting younger talent,” Jeff noted.
Trump Accounts: A Family-Focused New Offering
These accounts are designed to help children build early savings, similar to 529 plans.
- Employers can contribute up to $2,500 per year to an employee’s child’s Trump Account.
- Combined annual contributions (employer + employee) are capped at $5,000.
- Formal, nondiscriminatory plan documentation is required.
Pro Tip:
“This could signal a shift in how employers’ approach long-term family support,” said Cory.
Onsite Childcare Credits: A Game Changer for Small Businesses
The bill expands incentives for employers to offer childcare support:
- Large employers: Credit of up to 40% of expenses, capped at $500,000.
- Small businesses: Credit of up to 50%, capped at $600,000.
- Employers may now pool resources to offer shared childcare (details forthcoming).
Pro Tip:
“This provision has been underutilized. With these changes, that could shift dramatically,” said Kate.
Other Fringe Benefit Notes
- Paid Family and Medical Leave Tax Credit is now permanent. To qualify:
- Must offer at least 2 weeks of paid leave.
- Must pay 50% or more of wages.
- Plan must be documented and applied to all qualifying employees.
- Moving expense exclusion remains repealed (except for military/intelligence personnel).
What Didn’t Make the Final Bill
Several anticipated provisions were removed before final passage:
- No rollover of unused FSAs into HSAs.
- No large HSA contribution increases.
- No new tax credits for ICHRA-based coverage.
- ACA subsidies were not extended and will phase out.
Five Action Steps for Employers
Jeff closed with five key priorities for employers:
- Reevaluate benefit offerings
Align your programs with what today’s workforce values and what you can reasonably support. - Coordinate with your vendors
Understand compliance requirements, timelines, and documentation for any new or revised benefits. - Review and update plan documents
Ensure written plans meet non-discrimination standards and eligibility rules. - Develop a communication plan
Educate your employees on what’s changing, what’s available, and how they can benefit. - Get your records in order
Track payroll changes, benefits data, and compliance documents — especially for I-9s and payroll reporting.
Final Thoughts
Cory summarized it best: “Most business owners didn’t set out to become compliance experts — they set out to grow a business. Having strong partners in your corner ensures you can stay focused on that growth.”
Whether you’re considering new benefit offerings, tightening up compliance, or navigating mid-year changes to employee coverage, staying proactive is the name of the game.
Stay Connected
Follow @1RDG – The Financial Center on LinkedIn to view the full session replay and get updates on future LinkedIn Lives. We’ll continue to break down how OBBBA affects employers and help you stay one step ahead.