11 Jul “One Big Beautiful Bill Act” Brings Major Tax Changes for Individuals and Employers
The One Big Beautiful Bill Act (OBBB Act), signed into law by President Trump on July 4, 2025, introduces broad revisions to federal tax law—impacting individuals, employers, and payroll practices nationwide. Here’s a summary of key major tax changes you need to know:
🔒 Individual Income Tax Rates Made Permanent
Effective for tax years beginning after 2025, the current seven-bracket tax rate structure for individuals is locked in: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Trusts and estates will follow a separate schedule of 10%, 24%, 35%, and 37%.
💸 Standard Deduction Increases Finalized
The increased standard deduction amounts originally set by the Tax Cuts and Jobs Act are now permanent. Starting in 2025, the deduction amounts will be:
- $15,750 for single taxpayers
- $23,625 for heads of household
- $31,500 for married couples filing jointly
These amounts will be adjusted annually for inflation.
🍽️ New Deduction for Tipped Income (2025–2028)
Workers in eligible tip-based occupations can deduct up to $25,000 of reported tip income annually. The deduction phases out based on income:
- Begins reducing at $150,000 MAGI for single filers
- Eliminated entirely at $400,000 (or $550,000 for joint returns)
“Qualified tips” refer to cash or charged tips received in industries where tipping was customary prior to 2025. The IRS will publish a list of qualifying jobs by October 2, 2025.
⏰ Deduction for Overtime Pay (2025–2028)
A new deduction allows individuals to deduct up to:
- $12,500 per year in qualified overtime pay
- $25,000 for joint filers
Overtime must meet federal labor law standards and be clearly reported by the employer. Like the tip deduction, it phases out at the same income thresholds.
🚫 Personal and Dependency Exemptions Repealed
Starting in 2026, taxpayers can no longer claim deductions for personal or dependent exemptions. Filing thresholds will generally match the standard deduction for each filing status.
👵 Temporary Senior Deduction (2025–2028)
Taxpayers aged 65 and older may claim an additional $6,000 deduction. The benefit phases out gradually for incomes above $75,000 (or $150,000 for joint filers) at a rate of 6% of excess MAGI.
🚴 Bicycle Commuting Reimbursements No Longer Excludable
As of 2026, reimbursements for bicycle commuting can no longer be excluded from an employee’s income. This marks a shift in fringe benefit treatment and modifies historical inflation indexing.
🍱 Employer-Provided Meals Lose Deductibility
Beginning in 2026, meals provided by employers—if excludable from employee wages or deemed “de minimis”—will no longer be deductible business expenses. Exceptions apply for meals:
- Sold to employees
- Provided on vessels, oil/gas platforms, drilling rigs, or their support camps
- Provided to commercial fishing crews (50% limit still applies)
👨👩👧 Paid Family and Medical Leave (FMLA) Credit Becomes Permanent
Employers can now claim a permanent tax credit for offering paid family and medical leave. Enhancements include:
- Employers may claim the credit for either premiums paid for qualifying leave insurance policies or wages paid during leave—not both.
- The credit is available nationwide, regardless of state-mandated paid leave laws.
- Eligibility requirements reduced: employees only need six months of service and must work at least 20 hours per week.
Employers within the same controlled group (per IRS aggregation rules) must uniformly apply FMLA policies unless they can prove a substantial, legitimate business reason for different treatment.
📝 Final Thoughts
This legislation brings a blend of permanency and temporary relief designed to stabilize tax rules while offering targeted benefits to workers. The changes will have a significant impact on tax planning, employee benefits, and payroll reporting for the coming years.
If your organization needs help navigating these updates—especially around reporting tipped wages, overtime, or FMLA benefits—Payroll Partners is here to simplify it all. From payroll processing to partnering you with an HR Consultant for compliance, our team ensures you stay aligned with the latest laws while focusing on what matters most: your people.
This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.