How the One Big Beautiful Bill Act Impacts Employers’ Tax and Payroll Duties

The One Big Beautiful Bill Act (OBBBA), signed into law by President Trump on July 4, 2025, brings a wide range of changes that directly affect employers in the United States 🇺🇸. This update explains what has changed, who is affected, when the changes take effect, what actions employers need to take, and what these changes mean for current and future payroll and benefits administration. The goal is to help employers, payroll managers, and HR professionals understand how the new law impacts their daily operations and long-term planning.

Summary of What Changed

The OBBBA (H.R. 1, Public Law No: 119-21) is a sweeping law that amends and extends several parts of earlier tax laws, including the 2017 Tax Cuts and Jobs Act (TCJA) and the Inflation Reduction Act of 2022. The Act covers many areas, but for employers, the most important changes involve:

• Payroll tax provisions and how employers calculate and withhold taxes
• New rules for employee benefits, including deductions for overtime and tips
• Permanent changes to how certain reimbursements and deductions are treated
• A new cap on executive compensation deductions for publicly traded companies
• Changes to energy tax credits, especially for employers in the renewable energy sector

These changes are effective at different times, with some starting immediately and others beginning in 2025 or later. Employers must act quickly to stay compliant and avoid penalties.

Who Is Affected

The OBBBA affects a wide range of employers, including:

• All U.S. employers who handle payroll and employee benefits
• Publicly traded companies that offer executive compensation packages
• Employers in the renewable energy sector who claim energy tax credits
• Small and large businesses that reimburse employees for moving or commuting expenses
• Payroll service providers and HR departments responsible for tax withholding and reporting

Employees are also affected, especially those who work overtime, receive tips, or get certain reimbursements from their employers.

Effective Dates and Required Actions

The law includes several key dates and deadlines:

• July 4, 2025: Law signed by President Trump
• January 1, 2025: Permanent adoption of TCJA tax rates and standard deduction, retroactive to this date
• Tax years 2025-2028: New deductions for overtime and tips apply
• Immediately upon enactment: Paid family and medical leave employer tax credit permanently extended; elimination of bicycle commuting and moving expense exclusions
• After December 31, 2025: $1 million cap on executive compensation deductions for publicly traded companies
• After 2027: Accelerated phaseout of renewable energy tax credits and new restrictions for foreign-owned projects

Employers should review each change, update payroll systems, and communicate with employees as soon as possible.

Detailed Breakdown of Key Changes

1. Permanent Adoption of TCJA Tax Rates and Standard Deductions

The OBBBA makes the federal tax rates and standard deduction amounts from the TCJA permanent. This means:

• Standard deduction increases for 2025 and will adjust each year for inflation.
• A new temporary $6,000 annual deduction is available for taxpayers aged 65 or older, effective through 2028.

What Employers Need to Do:

• Update payroll tax withholding tables to reflect the new standard deduction and tax rates.
• Make sure payroll software is set to adjust for inflation each year.
• Inform employees, especially those aged 65 or older, about the new deduction.

2. New Deductions for Overtime and Tips

For tax years 2025 through 2028, employees can now deduct:

• Up to $12,500 (single filers) or $25,000 (joint filers) of qualified overtime income from federal income taxes.
• The deduction phases out for higher-income earners: starts at $150,000 (single) and $300,000 (joint).

What Employers Need to Do:

• Update payroll systems to track and report overtime and tip income separately.
• Adjust payroll tax withholding calculations to account for these new deductions.
• Provide clear pay stubs and year-end tax documents to help employees claim these deductions.

3. Extension of Paid Family and Medical Leave Employer Tax Credit

The federal paid family and medical leave employer tax credit, which was set to expire at the end of 2025, is now permanent. This credit encourages employers to offer paid leave benefits.

What Employers Need to Do:

• Continue or start offering paid family and medical leave programs.
• Claim the tax credit on business tax returns each year.
• Keep records of leave provided and amounts paid to employees.

4. Elimination of Bicycle Commuting Reimbursement Exclusion

Employers can no longer exclude up to $20 per month in bicycle commuting reimbursements from employees’ taxable income. These payments are now taxable and subject to payroll taxes.

What Employers Need to Do:

• Include bicycle commuting reimbursements as taxable wages on employee paychecks.
• Withhold federal income tax, Social Security, and Medicare taxes on these amounts.
• Update benefit communications to explain the change to employees.

5. Permanent Elimination of Moving Expense Deductions

Except for intelligence community members and active-duty military, the moving expense deduction and exclusion for employer-reimbursed moving expenses are now permanently eliminated.

What Employers Need to Do:

• Treat all moving expense reimbursements as taxable compensation.
• Withhold and pay payroll taxes on these amounts.
• Update relocation policies and inform employees about the tax impact.

6. $1 Million Cap on Executive Compensation Deduction for Publicly Traded Companies

Starting with tax years after December 31, 2025, publicly traded companies can only deduct up to $1 million per year for executive compensation.

What Employers Need to Do:

• Review executive compensation packages to ensure compliance.
• Adjust tax planning and reporting for executive pay.
• Work with legal and tax advisors to avoid exceeding the cap.

7. Changes to Energy Tax Credits and Foreign Entity Restrictions

Employers in the renewable energy sector face new rules:

• Accelerated phaseout of tax credits for wind and solar projects placed in service after 2027.
• Projects owned or controlled by certain foreign entities are now disqualified from receiving tax credits.

What Employers Need to Do:

• Reassess project financing and eligibility for energy tax credits.
• Review ownership structures to avoid disqualification.
• Monitor guidance from the IRS and Treasury for further details.

Implications for Pending Applications and Ongoing Payroll

Employers with pending applications for tax credits, deductions, or reimbursements must review their status under the new law. For example:

• Pending moving expense reimbursements: These must now be treated as taxable, even if the move was planned before the law was signed.
• Ongoing paid family leave programs: Employers can continue to claim the tax credit without worrying about expiration.
• Energy project applications: Projects not yet placed in service may face new restrictions or lose eligibility for credits if foreign ownership rules apply.

Employers should work closely with payroll providers, tax advisors, and legal counsel to review all pending and future applications in light of the OBBBA.

Practical Steps for Employers

To comply with the One Big Beautiful Bill Act and its payroll tax provisions, employers should:

• Update payroll systems to reflect new tax rates, deductions, and benefit rules.
• Communicate changes to employees, especially regarding the taxability of reimbursements and new deduction opportunities.
• Review and revise benefit policies to align with the new law.
• Consult with tax professionals to ensure all credits and deductions are claimed correctly.
• Monitor official guidance from the IRS and Treasury for updates and clarifications.

Employers should also keep detailed records of all changes made to payroll and benefits systems, as the IRS may request documentation during audits or reviews.

Stakeholder Perspectives and Expert Analysis

Analysis from VisaVerge.com suggests that the OBBBA’s changes will require significant adjustments for employers, especially in payroll and benefits administration. Tax experts warn that integrating the new rules into existing systems may be complex, and early preparation is key. Employers in the renewable energy sector face added uncertainty due to the accelerated phaseout of credits and new foreign ownership restrictions.

Employee advocates welcome the permanent extension of paid family leave credits, saying it supports workforce retention and family well-being. However, some business groups are concerned about the permanent elimination of moving expense deductions, which could increase the tax burden on employees who relocate for work.

Future Outlook and What to Watch For

The Department of Treasury and the IRS are expected to release detailed guidance soon. This will clarify how to handle payroll deductions, tax credits, and reporting under the new law. Employers should:

• Sign up for IRS updates and review new fact sheets as they become available.
• Stay in touch with payroll service providers for software updates and best practices.
• Be ready for possible amendments or clarifications as feedback from employers and other stakeholders is reviewed.

Employers should also keep an eye on Congress.gov for any new bills or amendments related to the OBBBA.

Official Resources for Employers

For more information and official updates, employers can visit:

• Congress.gov: H.R.1, One Big Beautiful Bill Act for the full bill text and legislative history.
• IRS Website: Check for new fact sheets and guidance on OBBBA tax deductions and payroll tax provisions.
• Department of Treasury: Watch for upcoming guidance on payroll and tax provisions.
• Payroll service providers like ADP: Look for updates on payroll system changes related to the Act.

Summary Table of Key Employer Impacts

Actionable Takeaways for Employers

• Act now: Review all payroll and benefits systems to ensure compliance with the new law.
• Communicate clearly: Let employees know about changes to deductions, reimbursements, and benefits.
• Stay informed: Regularly check the IRS and Congress.gov for updates and new guidance.
• Seek expert help: Work with tax professionals and payroll providers to handle complex changes, especially for executive compensation and energy tax credits.
• Document everything: Keep records of all changes and communications related to the OBBBA.

By taking these steps, employers can minimize risk, avoid penalties, and help employees understand how the One Big Beautiful Bill Act affects their pay and benefits. For the most current updates and official information, visit Congress.gov’s OBBBA page and the IRS website.

Learn Today

One Big Beautiful Bill Act (OBBBA) → A 2025 US law updating tax rates, payroll provisions, and employee benefits affecting employers nationwide.
TCJA → The Tax Cuts and Jobs Act of 2017, providing tax rate reductions and deductions now made permanent by OBBBA.
Executive Compensation Deduction → Tax deduction limit on executive pay for publicly traded companies, capped at $1 million yearly after 2025.
Paid Family and Medical Leave Employer Tax Credit → A federal credit encouraging employers to offer paid family and medical leave benefits.
Energy Tax Credits → Tax incentives for renewable energy projects, now with accelerated phaseout and foreign ownership restrictions under OBBBA.

This Article in a Nutshell

Signed July 4, 2025, the One Big Beautiful Bill Act permanently changes payroll tax rules, benefit deductions, and energy tax credits for employers nationwide, requiring urgent system updates and employee communication to ensure compliance and optimize tax planning.
— By VisaVerge.com