Recent Tax Law Changes: 10 Provisions Employers Need to Know
The One Big Beautiful Bill Act (OBBBA) includes numerous tax law changes that affect employers. Understanding these provisions is essential to ensure compliance with federal tax and reporting obligations — and to minimize taxes when providing employee benefits. Below are 10 key employer-focused updates.
1. Employee Deductions for Qualified Tips and Overtime Income
For 2025 through 2028, the OBBBA introduces federal income tax deductions for qualified tips income and qualified overtime income. These are deductions, not exclusions — meaning they remain subject to payroll taxes and federal withholding rules, and likely remain fully taxable at the state and local levels.
The IRS announced that, for tax year 2025, no changes will be made to federal payroll forms or withholding tables. Employers must nevertheless track qualified tips and overtime income retroactively for all of 2025, including amounts paid before July 4, 2025, the date OBBBA was enacted.
Proposed regulations released in September 2025 include a list of nearly 70 occupations eligible for the tips-income deduction. These occupations have designated three-digit codes for information-return reporting.
2. Employer-Provided Dependent Care Assistance Programs
Starting in 2026, the annual maximum tax-free dependent care FSA benefit increases to:
- $7,500 (previously $5,000)
- $3,750 for married filing separately (previously $2,500)
These accounts allow employees to make pre-tax contributions to cover dependent-care costs, reducing both income and payroll taxes.
3. Employer Credit for Paid Family and Medical Leave
The OBBBA permanently extends the employer credit for paid family and medical leave.
Beginning in 2026, employers may choose between:
- Claiming the credit for wages paid during qualified leave, or
- Claiming the credit for insurance premiums paid for qualifying family and medical leave coverage.
Credit percentages remain 12.5% to 25%. Employers may not claim both credits in the same year, and premium-based credits reduce the deduction for those premiums.
4. Credit for Employer-Provided Child Care
Through 2025, employers may claim a credit of 25% of qualified child-care expenses (plus 10% for resource and referral expenses), up to $150,000.
Starting in 2026:
- Credit percentage increases to 40%
- Maximum credit increases to $500,000
- For small businesses, the credit is 50% up to $600,000
- Amounts adjust annually for inflation
- Small employers may pool resources and use third-party intermediaries to provide child-care services
Small businesses must have average gross receipts below $32 million for 2026 (inflation-adjusted thereafter).
5. Employer-Provided Educational Assistance Plans (Sec. 127)
The OBBBA permanently extends the ability for employer Section 127 plans to provide tax-free repayment of an employee’s qualified education loans beginning in 2026.
Starting in 2027, the annual $5,250 tax-free limit will be adjusted for inflation.
6. Health Savings Accounts (HSAs)
Beginning in 2025, HDHPs may offer pre-deductible telehealth coverage without affecting HSA eligibility.
Beginning in 2026, HSAs may cover eligible Direct Primary Care (DPC) arrangements, with monthly fee caps of:
- $150 for individual coverage
- $300 for family coverage
These thresholds will be indexed for inflation.
7. Employer Contributions to Trump Accounts
Starting July 4, 2026, employers may contribute up to $2,500 annually (indexed for inflation starting in 2028) to Trump Accounts for eligible employees or their dependents under age 18. Contributions:
- Are tax-free to employees/dependents
- Are excluded from payroll taxation
- Must be provided under a nondiscriminatory written plan
8. Employer-Paid Moving Expenses
Beginning in 2026, the TCJA’s suspension of tax-free employer-paid moving expenses becomes permanent — except for active-duty military and now intelligence community members.
Employer payments remain deductible to the employer but taxable to the employee.
9. Transportation Fringe Benefits
For 2026 and beyond, the OBBBA makes permanent the TCJA rules that:
- Disallow employer deductions for providing tax-free qualified transportation fringe benefits
- Continue the suspension of bicycle-commuting reimbursements
Monthly limits are:
- $325 for 2025
- $340 for 2026
10. Relaxed Information Reporting Rules
For payments made after 2025, the information-reporting threshold rises from $600 to $2,000, with inflation adjustments beginning in 2027.
This applies to reporting on Forms W-2, 1099-NEC, 1099-MISC, and others.
Next Steps for Employers
The OBBBA introduces significant changes — some immediate, some phased in — and IRS guidance is still evolving. Employers should:
- Monitor IRS announcements closely
- Update payroll, HR, and benefits systems
- Track applicable wage categories starting in 2025
- Work with a qualified tax advisor to ensure accurate implementation
For organizations seeking professional support, partnering with firms experienced in tax accounting solutions Brookfield and the best Accounting Services Brookfield can help ensure full compliance and optimal tax-benefit strategy under the OBBBA.