The One Big Beautiful Bill (OBBB): What Employers Need to Know
Discover how 'The One Big Beautiful Bill (OBBB): What Employers Need to Know' impacts payroll and benefits. Stay compliant with OBBB changes today!
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SEPTEMBER 2025
TABLE OF CONTENTS
TABLE OF CONTENTS
TABLE OF CONTENTS
TABLE OF CONTENTS
TABLE OF CONTENTS
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- This course is offered for free to all Vida HR Clients -
In just 30 minutes, attendees will learn:
Description:
Having enough time to work doesn’t guarantee you have the energy to perform at your best. When your calendar is full but your focus is gone, productivity drops, mistakes increase, and burnout creeps in. Managing your time is important but managing your energy is what actually drives results.
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This 30-minute Power Session delivers a focused, high-impact look at how to match your work to your natural energy peaks and avoid the costly trap of “energy debt.” Participants will learn how to protect their most valuable resource. Not hours, but brainpower.
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Short, sharp, and packed with practical takeaways, this session equips participants with the tools to work with their energy, not against it, for better focus, higher productivity, and less burnout.
Because success isn’t about filling your schedule. It’s about showing up at your best when it matters most.
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Understand why managing energy leads to better results
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Identify their personal energy curve
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Recognize the signs and costs of energy debt
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Apply strategies to match tasks with peak energy
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Learn small daily habits to recharge energy
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Commit to one change to work with their energy
The One Big Beautiful Bill (OBBB)
What Employers Need to Know
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The One Big Beautiful Bill (OBBB), was signed into law on July 4, 2025. It introduces sweeping changes to payroll, benefits, and workforce management. Two of its most notable provisions, “No Tax on Tips” and “No Tax on Overtime”, take effect for wages paid in 2025 and are set to expire after 2028, giving employers a limited window to adapt.
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Note: The OBBB also includes broader federal tax updates, such as changes to standard deductions, SALT caps, and elements of the 2017 Tax Cuts and Jobs Act. While these changes primarily impact individual taxpayers, Vida HR will continue to monitor any downstream effects on payroll processing and compliance.
Key Highlights for Employers
Tax-Free Tips & Overtime (Section: 70201 & 70202)
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Employees can deduct up to $25,000 in qualified tips and $12,500 in FLSA-required overtime pay each year.
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Only employees in occupations that customarily receive tips are eligible for the tip deduction, per IRS guidance.
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Overtime deductions apply only to FLSA-required overtime, not state-only daily overtime or voluntary double-time.
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Employees must retain documentation and claim the deduction when filing their federal taxes. Employers are not responsible for calculating the deduction amount.
New W-2 Reporting Requirements
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Employers must track and report qualified tips and overtime separately on Form W-2.
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Vida HR payroll clients can rest easy, our team will handle payroll setup, tracking, and reporting updates for you.
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No changes to current payroll tax withholding are required right now. These are employee deductions claimed at tax filing.
Retroactive Tracking
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These provisions are effective for all 2025 wages, meaning qualifying tips and overtime already paid this year must be tracked retroactively.
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No reprocessing of past payroll is required right now. Vida HR will implement tracking for clients and manage any year‑end reporting needs.
Benefits and Tax Credits
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OBBB expands eligibility for telehealth services under HSAs and FSAs, and increases some annual contribution and reimbursement limits.
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Employers may claim new tax credits for offering paid family leave and on-site or subsidized childcare.
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Vida HR will help you evaluate benefits eligibility and, if requested, provide reporting to support your CPA in capturing any applicable credits.
Additional Tax Credit Opportunities + Changes Under OBBB
Beyond the payroll and benefits provisions, the OBBB also includes updates to several federal tax credits that may benefit employers:
​Research & Development (R&D) Credit:
Employers investing in new products, processes, or improvements may be eligible. Recent changes require research expenses to be amortized over several years (Section 174), impacting how deductions are timed.
FICA Tip Credit
Adjustments for industries where tipping is customary, allowing eligible employers to offset part of their FICA tax paid on employee-reported tips.
Employer-Paid Child Care Credit (Section: 70401)
Increased flexibility and potential credit amounts for providing or subsidizing childcare, helping offset the cost of family-friendly workplace benefits.
Health Savings Accounts and Direct Primary Care Arrangements
Beginning January 1, 2026, the OBBB expands HSA eligibility by allowing individuals to participate in qualifying Direct Primary Care (DPC) arrangements without disqualifying their HSA contributions.
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To remain eligible, monthly DPC fees must not exceed $150 for individuals or $300 for families. These limits will be indexed annually for inflation after 2026. In addition, DPC membership fees that fall within these thresholds may now be reimbursed directly from an HSA, providing more flexibility for employees seeking value-based primary care options.
Additional Employer Provisions Effective January 1, 2026
Increased Tax-Free Dependent Care Assistance Limits (Sec 70404)
Starting in 2026, the annual tax-free limit on dependent care assistance benefits increases from $5,000 to $7,500 for individuals (and from $2,500 to $3,750 for married individuals filing separately). Employers offering dependent care flexible spending accounts (DCFSAs) or similar plans should update plan documents and communicate the new limits during open enrollment for 2026.
Updated 1099-NEC Thresholds for Independent Contractors
Also effective January 1, 2026, the reporting threshold for payments to independent contractors increases from $600 to $2,000. This applies to both Form 1099-NEC reporting and backup withholding requirements. Beginning in 2027, this threshold will be indexed annually for inflation. Employers should review contractor engagement processes and prepare for updates to year-end reporting systems.
Action Steps for Employers
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Verify employee eligibility for the new deductions to prevent improper claims.
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Review benefit offerings to identify opportunities for new tax credits.
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Communicate with employees that this is a deduction they claim at tax time, not an immediate increase in take-home pay.
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Avoid risky pay strategies; creative reclassification or “extra overtime” schemes can create compliance problems.
Why This Matters
The OBBB creates meaningful tax advantages for employees but also brings new tracking and reporting responsibilities for employers. These changes offer a unique opportunity to enhance your employee value proposition—tax-free tips and overtime, expanded benefit eligibility, and flexible primary care options can make a real impact on take-home value. Employers who communicate these advantages effectively may find a competitive edge in recruiting and retaining top talent.
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As your payroll partner, Vida HR will manage the payroll and reporting requirements so you can focus on employee communication and benefits planning. We are also monitoring state and local conformity and will update impacted clients as guidance is released.
COMING SOON: isolved Direct Deposit MFA - AEE
Last month, isolved rolled out a new enhanced security feature for all Direct Deposit updates in the Employee Self-Service Administration View (Classic View) requiring Multi-Factor Authentication (MFA) for all changes.
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This month, this same security feature is now available for Employee Workspace (Adaptive Employee Experience) portal.
This applies to all user types, including Service Bureau, Partner, Client, and Employee Self-Service (ESS) users.
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This additional layer of security ensures that only authorized individuals can make updates to direct deposit information in Classic View, safeguarding employee financial data from unauthorized access.
What You Need to Know:
Automatic MFA Prompt:
MFA will automatically prompt users to verify their identity when attempting to save direct deposit changes. No setup is required; users will need to enter the emailed MFA code on the screen to authenticate.
Streamlined Session Experience:
Once authenticated, users can make multiple updates during the same session without needing to re-authenticate for each change.
This update is designed to provide a smoother, safer experience while maintaining the highest standards of security.
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Following the Direct Deposit Update, users will also receive an email confirming the update and prompting the user to contact an HR or Payroll representative if they did not make or authorize the change:
QUESTION:
I’m a new HR director, and recently while conducting an audit of our files, I realized that the previous HR director did not have an employee fill out any required onboarding paperwork. They’ve been working for several weeks, accessing client data and submitting expenses, even though they haven’t signed off on any of our policies.
What is an employer’s obligation when they find an employee did not complete required onboarding paperwork?
Answer:
Immediately have the employee complete the Form I-9 and W-4.
For the Form I-9, do not backdate the form, clearly state the actual start date and attach a signed and dated explanation of the corrective action taken to ensure compliance.
For the form W-4, the IRS states that, until you receive a valid W-4, you should withhold as if they are single with no other entries. For all employer specific but not legally required paperwork, you should have the employee complete it as soon as possible.
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Long Answer
This is the situation employers never want to find themselves in. Compliance may not be fun or even easy, but the consequences of non-compliance can be severe. Thankfully, there are some remedies available for employers to take corrective action to bring themselves into compliance.
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First, let’s define the scope of the problem. Onboarding paperwork generally contains two types of documents: legally required paperwork, and employer required paperwork. Non-compliance mostly concerns the legally required paperwork, so we’ll focus on that first.
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Legally Required Paperwork
The two most important forms an employee needs to fill out are a Form I-9 and a W-4. These forms relate to employment eligibility and tax withholding, respectively.
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The federal government has provided guidance on what to do if an internal audit reveals an I-9 was not completed. The employee must complete an I-9 as soon as possible, and when completing section 2, the employer must clearly state the actual start date; no backdating the form. The employer should attach a signed and dated explanation of the corrective action taken to ensure compliance.
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For the W-4, your employee should also complete the form as soon as possible. If they do not complete a W-4 or otherwise give you an invalid W-4, the IRS has published several guidelines relating to such cases. The employee should always be treated as if they are single with no other entries, until the employer receives a valid W-4.
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Employer Required Paperwork
While there aren’t any non-compliance penalties for paperwork that is required by the employer, there are still concerns that may come up if an employee doesn’t complete them. If they were to ever be terminated, and the employee filed for wrongful termination, you likely wouldn’t be able to point to any policy or handbook violation as a defense, as the employee did not sign off on them. Because of this, if you find an employee has not completed this paperwork, they should do so as soon as possible.
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