6 Employer Tax Changes Now That Big Beautiful Bill Is Law

On July 4, 2025, the One Big Beautiful Bill Act became law, with numerous tax implications for employers as well as employees.

HR 1 extends many expiring provisions of the Tax Cuts and Jobs Act (TCJA). For example, the 2017 changes to the individual income tax brackets and the standard deduction — that would have ended on December 31, 2025 – will remain in place and even be expanded.

Much more is contained within the nearly 1,000 pages of the 2025 budget reconciliation bill.

Here’s a quick rundown of some key provisions of the tax reform legislation.

Tax Cuts to Note

#1. Internal Revenue Code (IRC) Additions. The One Big Beautiful Bill adds sections 224 and 225 to the IRC. Better known as “no tax on tips” and “no tax on overtime,” these provisions are designed to put more money in employees’ pockets. The effective date of both of these provisions is retroactive, going back to January 1, 2025. For both tip and overtime compensation, employers will withhold federal income tax as they have been doing and then report the earnings on Form W-2 in a manner yet-to-be set by the IRS. Later, when employees complete Form 1040, they’ll be able to claim the deductions.

Note: While the law doesn’t contain a blanket “no tax on Social Security” provision, it does provide a $6,000 deduction that individuals age 65 and older can claim on Form 1040, with limitations based on modified adjusted gross income.

All these deductions will run through 2028.

#2. Health Savings Accounts (HSAs). HR 1 gives the green light to employees using telehealth services without paying a deductible. The new law says an employer-provided health plan can still be considered a high-deductible health plan (HDHP) even if it doesn’t require a deductible for telehealth and other remote care. That’s important given that HSA eligibility is contingent upon having an HDHP.

The CARES Act had allowed employers to waive the deductible requirement for remote services, but that provision only applied to plan years that began prior to January 1, 2025. Now, the safe harbor has been permanently extended – and it’s retroactive, picking up where the Coronavirus Aid, Relief, and Economic Security (CARES) Act and other COVID-era laws left off. 

#3. Dependent Care Flexible Spending Accounts (FSAs). Employers that choose to offer dependent care FSAs as part of a fringe benefits package will be able to increase the amount that can be excluded from income. For decades, the excludable amount has been capped at $5,000 ($2,500 if married filing separately). Starting in 2026, the excludable amount will be increased to $7,500 ($3,750 if married filing separately).

#4. Employer Payments of Student Loans. Due to the Big Beautiful Bill, employers will permanently be able to make payments of student loans under IRC Section 127 educational assistance programs. This use of a Section 127 plan had first been permitted under the CARES Act. Currently, up to $5,250 in educational assistance benefits is excludable from an employee’s income each year. That amount has been frozen for decades, but starting in 2027, it’ll be adjusted for inflation because of the new law.

#5. Employer Contributions to ‘Trump Accounts.’ The reconciliation bill contains a new type of savings account, which parents can set up for their children under age 18. If a “Trump account” is opened and certain other qualifications are met, babies born between 2025 and 2028 will receive a $1,000 contribution from the federal government. Parents will be able to contribute $5,000 per year to their child’s account. Of that, employers can opt to contribute half – i.e., $2,500 per year – and that’ll be considered a nontaxable fringe benefit.

#6. State and Local Tax (SALT) Deduction. The TCJA had imposed a cap on the federal deduction for SALT. Under HR 1, the cap will stay in place but, starting this year, will increase from $10,000 to $40,000. Then, in 2030, it’ll return to $10,000. Until 2030, the SALT deduction will be connected to income. If a taxpayer hits the threshold – i.e., gross income of $500,000 (or $250,000 if married filing separately) – then the deduction will be reduced by 30%. This change, and others, may lead employees to fill out a new Form W-4, Employee’s Withholding Certificate.