By Mark Adams
On July 4, 2025, President Trump signed into law the much-anticipated One Big Beautiful Bill Act (OBBBA)—a sweeping legislative package combining tax cuts, deregulatory measures, and entitlement reform. From a human resources and employment standpoint, the bill has both immediate and long-term implications for employers.
“No Tax on Overtime and Tips” a Reality – for Now
Among the bill’s most impactful employment-related provisions is the creation of a new federal tax exclusion for workers who earn tips or overtime pay. Employees can deduct up to $25,000 in reported tips or $12,500 in overtime from their taxable income, creating a potential net increase in take-home pay—especially in hospitality, retail, and healthcare. These provisions sunset in 2028, but in the near term, they may affect recruitment and retention strategies, particularly for lower-wage jobs. However, eligibility rules are narrow, tip exclusions apply only to cash-based tips, and HR departments must be ready to support payroll providers with updated reporting processes and clear employee communications. The OBBBA instructs the Internal Revenue Service (IRS) to issue guidance on the implementation of these provisions, therefore, we can expect the mechanics of how this will work in practice to be forthcoming as we head into fall. Will these provisions ultimately become permanent? Time will tell. However, these changes do not impact their taxability on a state level.
Employer Repayment for Employee Student Loan Exclusion Made Permanent
Other provisions that support employees include making permanent a provision that originated in the 2017 Tax Cuts and Jobs Act (TCJA) that allows for an employer to make repayment of an employee’s student loan(s) and have those repayments be excluded from an employee’s income (up to $5,250 a year). Making this provision permanent (whereas it was set to expire at end of 2025), may entice more employers to incorporate that into their talent acquisition, retention and compensation strategies as students wrestle with student loans that may not otherwise have been forgiven.
Telehealth and HSA Eligibility
We all know that COVID-19 saw a rise in telehealth services and the CARES Act amended the Internal Revenue Code to allow High-Deductible Health Plans (HDHPs) to provide such services without having to meet the plan’s minimum deductible. Not surprisingly, given the widespread acceptance of telehealth, the OBBBA provides a permanent safe harbor to encourage more employers to adopt these offerings into their benefit offerings.
Direct Primary Care Arrangements Do Not Disqualify HSA Eligibility
Speaking of HSAs, the OBBBA also provided greater flexibility for individuals seeking to participate in what are called “Direct Primary Care Arrangements” (DPCAs). DCPAs are fee-based arrangements whereby an individual pays a fixed periodic fee for access to primary care services from providers. These fees are paid directly to the Direct Care Providers and not billed to insurance companies. As a result, DPCAs avoid potential delays or restrictions to such care that can be encountered with insurance companies.
The OBBBA allows for participation in these arrangements and employees who do so will not be disqualified from participating in an HSA provided that the fee is not more than $150/month for an individual or $300/month for family (these figures are indexed and therefore subject to adjustments in future years). What’s even better is that these DPCA fees also qualify as a qualifying medical expense that can be paid out of an HSA. So, clearly there is an incentive to try to expand the utilization of these programs.
Work and Service Requirements Adjusted
The law also includes controversial work requirements for Medicaid and SNAP recipients, mandating a minimum of 80 work or community service hours per month for most adults under 55 without dependents. For workers, this may trigger instability among vulnerable employee populations, especially those in part-time or variable-hour roles. For some employers, HR teams may see increased turnover, absenteeism, or benefits inquiries, as workers attempt to meet eligibility thresholds or lose access to public benefits. Proactive scheduling and financial counseling may become critical retention tools in affected workplaces.
Dependent Care Assistance Programs Going Up
While other exclusions have been adjusted over time (including but not limited to health Flexible Spending Accounts (FSAs)), Dependent Care Assistance Programs have (except for a brief period during COVID) remained fixed at an annual amount limit of $5,000 (or $2,500 limit for married individuals filing separately). Well, the OBBBA changes those figures with increases to $7,500 and $3,750 respectively. This would be effective for taxable years beginning after December 31, 2025.
Employer-Provided Child Care Incentivized
For employers interested in providing childcare for their employees, the OBBBA provides more incentive to do so with heightened tax credits of up to 40% of expenses up to $500,000, or 50% up to $600,000 (for small employers) for any taxable year. Such expenditures can include acquiring, constructing, rehabilitating or expanding property used as a qualified childcare facility or amounts paid or incurred under a contract with a qualified childcare facility to provide childcare services to employees. The heightened tax credit applies to amounts paid or incurred after December 31, 2025, and is also indexed for future years. [By contrast, the threshold previously under §45F of the tax code capped the amount at 25% of expenses up to a maximum of $150,000 per year.]
An added plus is that the OBBBA also allows small businesses to pool resources to contract with a qualified childcare provider (something that had not been allowed in the past).
New Benefit Opportunity – Trump Accounts
We know what Individual Retirement Accounts (IRAs) are. Well, starting, January 1, 2026, there will be a new account available called a “Trump Account.” Operating in a similar fashion to a IRA, this account will allow individuals to set up these accounts for their children provided that: (1) the child is a minor when the Trump Account is opened; (2) they are U.S. citizens; and (3) the child’s parents (or parent filing income tax return where the child is claimed as a dependent) must have a U.S. social security number. While the child is a minor, the account will basically operate like a custodial account with the minor being the beneficiary – though once the beneficiary turns 18 years of age, then the account will operate like an IRA.
What puts Trump Accounts on the radar for HR and employers is that employers will have the wherewithal to contribute to these accounts on a tax-free basis up to $2,500 per year (adjusted annually with inflation provided that the employer has a separate written plan document in place for such contributions and the plan will be subject to nondiscrimination rules akin to other Dependent Care Assistance Programs). So, while this creates another opportunity to engage and provide a benefit to your employees, we expect more guidance to be forthcoming on how this will be implemented.
AI Moratorium Did Not Survive
What didn’t become reality? Preventing states from regulating Artificial Intelligence (AI). After much initial ballyhoo, the final bill did not include the widely discussed 10-year moratorium on artificial intelligence (AI) deployment in employment decision-making, which was floated in early drafts but dropped during negotiations. As a result, HR professionals must navigate evolving AI governance risks without a federal compliance framework.
The bill’s failure to include an AI moratorium also leaves a significant regulatory gap for employers. Although some states have begun introducing restrictions on algorithmic decision-making in hiring and employee monitoring, the lack of a uniform federal standard leave employers exposed to legal ambiguity and reputational risk. HR leaders should not interpret the omission as permission to proceed unchecked. Instead, it reinforces the need to establish internal AI governance frameworks, audit algorithms for bias, and maintain transparency with employees, especially as public scrutiny over AI in employment continues to rise.
In summary, while the Big Beautiful Bill introduces attractive tax incentives and regulatory relief for some employers, it also generates new risks related to public benefits, payroll administration, and the unchecked use of AI in the workplace. HR professionals must remain agile, responding not only to what the law includes, but also to what it leaves unsaid.