The enactment of the One Big Beautiful Bill Act, or OBBBA, on July 4, 2025, mandates significant changes for employers as they prepare for full operational compliance in 2026. With the conclusion of transition relief provided by the IRS, organizations must ensure their payroll systems, reporting workflows, and workforce policies are fully functional for the upcoming tax year. This legislation not only addresses payroll reporting and benefits plan administration but also imposes new immigration compliance requirements that could escalate operational costs.
Essential Changes for Payroll and Reporting
From 2026, employers will be required to report qualified tips and overtime compensation separately on Form W-2. The OBBBA introduces new federal tax deductions for qualified tips and overtime pay, which are applicable for tax years 2025 through 2028. While employees claim these deductions, employers play a crucial role in accurately capturing and reporting the relevant compensation data.
The OBBBA allows a deduction for overtime pay earned beyond 40 hours in a workweek, with a cap of $12,500 annually ($25,000 for married couples filing jointly). Only the portion exceeding the employee’s regular rate qualifies for this deduction. In terms of tips, eligible workers can deduct up to $25,000 of qualified tips, provided they are voluntary and not subject to negotiation. Employers must prepare their payroll and HR systems to accurately track and report these figures, as failure to comply with the new reporting obligations could result in penalties.
Immigration Compliance and Associated Costs
OBBBA introduces new immigration-related provisions that directly impact employer budgets and compliance strategies. The law establishes increased immigration fees, which are mandatory and non-waivable, leading to higher per-case costs for employers. As worksite enforcement intensifies, employers should anticipate increased scrutiny regarding Form I-9 completion, reverification, and document retention practices.
Organizations are encouraged to conduct thorough evaluations of their immigration compliance programs, ensuring they are standardized and capable of withstanding audits. Proactive measures will help mitigate risks associated with heightened enforcement expectations.
Employee Benefits Changes and New Initiatives
Several provisions of the OBBBA will affect employee benefits starting in 2026. The legislation permanently extends the telehealth safe harbor for high-deductible health plans, allowing pre-deductible telehealth coverage without jeopardizing health savings account eligibility. Additionally, the maximum annual exclusion for dependent care assistance will rise to $7,500 beginning in 2026, which may necessitate plan amendments and payroll updates.
A new feature introduced by the OBBBA is the creation of “Trump Accounts,” which are IRA-type accounts for eligible children. These accounts can be set up by parents or guardians beginning July 4, 2026, allowing for tax-favored contributions. Although there is no mandatory employer obligation to contribute, limited contributions are permitted.
Looking Ahead: Compliance Readiness Is Crucial
As OBBBA provisions continue to be phased in through 2028, employers must remain vigilant and proactive in their compliance efforts. The expiration of transition relief means that systems and processes need to function correctly from the outset of 2026. Organizations that delay preparation risk facing payroll errors, reporting corrections, and increased compliance costs.
Employers should engage legal counsel and compliance vendors early to navigate the intricate requirements of the OBBBA. By staying informed and adjusting their policies accordingly, employers can minimize disruption and ensure they meet their obligations under this significant legislation.
