27 Attorneys Named to ‘Best Lawyers’
As part-owner of a small, seasonal family business, I knew the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, might impact our operations. As others small business owners might appreciate, though, making even small changes during a short operational season can feel overwhelming. While we focused on the impacts of decreased tourism and making the most of tight margins, questions about the OBBBA began to build. What follows is a brief summary of some core changes from the Act as well as recommendations to help employers adapt effectively.
Payroll Tax
Key Changes:
The Act introduces payroll tax relief for tipped and overtime (OT) wages:
- Tips: Eligible earners may deduct up to $25,000 in qualified tips. Relief applies only to positions that regularly received tips before December 31, 2024. The Department of Treasury will publish the eligible occupations list by October 2, 2025.
- Overtime: Eligible earners may deduct up to $12,500 of the premium portion of OT pay (above the base rate for hours beyond 40/week).
Recommendations:
- Upgrade Payroll Systems: Employers must be able to track and report tipped and OT income separately on W-2 forms. Payroll providers should be consulted for compliance updates.
- Monitor IRS Guidance: Employers should watch for clarifications on occupation eligibility and implement timely policy and system updates.
Medicaid
Key Changes:
The Act introduces a national work requirement for Medicaid eligibility. Recipients must work at least 80 hours per month to retain coverage. HR departments may face increased requests for employment verification, paystubs, or documentation. Reduced health coverage, particularly among lower-wage workers, could result in increased absenteeism, turnover, or presenteeism (working while sick).
Recommendations:
- Support Documentation Needs: Equip HR to handle documentation efficiently. Standardize employment verification processes to meet Medicaid compliance.
- Assess Workforce Risks: Consider support strategies such as flexible scheduling or targeted health benefits for affected employees.
- Enhance Communication: Provide clear information about how work hours and benefits interact under the new rules.
HSA Expansions
Key Changes:
Key changes to HSA use for telehealth and direct primary care allow employers to offer HDHPs paired with HSAs for a broader range of employees.
- Telehealth Coverage: HSA-compatible plans may now permanently offer telehealth coverage before the deductible.
- Direct Primary Care (DPC): HSA funds can now be used to pay for DPC arrangements.
- ACA Plan Eligibility: Individuals enrolled in Affordable Care Act (ACA) marketplace plans will be eligible to contribute to HSAs.
Recommendations:
- Expand Plan Options: Consider offering HDHPs with integrated telehealth and DPC services to attract cost-conscious employees.
- Educate Employees: Clearly communicate the expanded uses and eligibility for HSAs.
- Leverage Stability: Use the legislated permanence of these provisions to streamline benefits planning and vendor contracting.
Dependent Care FSA Contribution Limit Increase
Key Changes:
The contribution limit for Dependent Care FSAs increases from $5,000 to $7,000. This change offers greater tax-advantaged savings for employees with childcare or dependent care expenses.
Recommendations:
- Amend Plan Documents: Update cafeteria plans and employee handbooks to reflect the new limit.
- Communicate Changes: Inform employees during open enrollment and throughout the plan year about the increased limit.
- Review Nondiscrimination Compliance: Ensure the plan still meets IRS Section 129 requirements.
The OBBBA introduces a mix of regulatory burdens and opportunities for employers. Medicaid eligibility rules raise compliance and operational risks, especially for industries with vulnerable workforces. In contrast, tax relief for certain wages and expanded HSA/FSA benefits can be leveraged to strengthen recruitment, retention, and employee satisfaction. Employers should consider a dual strategy: compliance vigilance in areas of enforcement and strategic benefit design to capitalize on other provisions. HR and payroll teams should coordinate closely with legal support to ensure both legal adherence and workforce stability.
