New 2025 Tax Law: What Employers Need to Know Now
On July 4, 2025, President Donald Trump signed into law the One Big Beautiful Bill Act (OBBBA), a comprehensive tax reform package that introduces significant changes affecting employers across the United States. This legislation encompasses modifications to payroll, employment taxes, and employee benefits. Understanding these changes is crucial for employers to ensure compliance and to identify potential opportunities for tax savings.
Key Changes in Payroll and Employment Taxes
- Permanent Extension of 2017 Tax Cuts
The OBBBA makes permanent the individual tax cuts introduced in the Tax Cuts and Jobs Act of 2017, including the 37% top income tax rate. - Increased Standard Deduction
The standard deduction has been nearly doubled, providing relief to taxpayers. For example, the deduction for single filers has increased to $15,000, and for married couples filing jointly, it has risen to $30,000. - Enhanced Child Tax Credit
The child tax credit has been raised to $2,200 per child, with adjustments for inflation, offering additional support to families. - Temporary Increase in SALT Deduction Cap
The cap on state and local tax (SALT) deductions has been temporarily increased to $40,000 for 2025, benefiting taxpayers in high-tax states. - Tax Deductions for Tips and Overtime
Employees earning less than $150,000 annually can now deduct up to $25,000 in tip and overtime income from 2026 to 2028, providing relief to workers in industries like hospitality and retail.
Impacts on Employee Benefits
- Health Savings Accounts (HSAs)
The OBBBA introduces enhancements to HSAs, including increased contribution limits, allowing employees to set aside more pre-tax income for medical expenses. - Telehealth Services
The Act permanently extends telehealth relief for high-deductible health plans (HDHPs), enabling employees to access telehealth services without first meeting their deductible. - Dependent Care Flexible Spending Accounts (FSAs)
Annual contribution limits for dependent care FSAs have been increased, providing additional tax-advantaged savings opportunities for employees with dependents.
Considerations for Employers
- Review and Update Payroll Systems: Ensure that payroll systems are updated to reflect the new tax rates and deductions to maintain compliance.
- Communicate Changes to Employees: Inform employees about the changes to tax deductions and benefits to help them make informed financial decisions.
- Evaluate Employee Benefit Offerings: Assess current benefit programs to align with the new provisions, potentially enhancing employee satisfaction and retention.
- Consult with Tax Professionals: Engage with tax advisors to understand the full implications of the OBBBA on your organization and to strategize accordingly.
The One Big Beautiful Bill Act introduces substantial changes that can impact various aspects of your business operations. Staying informed and proactive in adapting to these changes will be essential in navigating the new tax landscape effectively.