Since officially becoming law on Independence Day 2025, the One Big Beautiful Bill Act (OBBBA) has resulted in significant changes to both individual and business taxes alike. For businesses with employees who receive tips and/or overtime pay, there are some especially important changes to be aware of.
In addition to the many tax implications of OBBBA, individuals with dependents should also be aware of so-called “Trump accounts” made available under the new law, which are designed to encourage early investment for children and young adults alike.
Interested in learning more about these OBBBA provisions and how they could affect you? Dive into the details below.
One of the most notable changes initiated by OBBBA relates to the taxation of both tips and overtime pay. Specifically, under OBBBA (and effective retroactively to January 1, 2025), tipped employees can deduct up to $25,000 of qualified tips. However, it is worth noting that this cap is further reduced by $100 for each $1,000 that the individual's adjusted gross income (AGI) exceeds $150,000 (for single filers) or $300,000 (for joint returns).
Likewise, there are strict qualification requirements in place for tips that can be counted toward this deduction. More specifically, these tips must be:
Likewise, OBBBA has retroactively initiated a tax deduction for workers receiving qualified overtime pay. Under this new provision, workers may deduct up to $12,500 (or $25,000 for joint filers) of overtime pay, with the allowable deduction reduced by $100 for each $1,000 that the employee's AGI exceeds $150,000 (filing individually) or $300,000 (filing jointly).
What kinds of overtime compensation qualify for this tax break? Under OBBBA, only the premium portion of overtime as outlined under the Fair Labor Standards Act (FLSA) can be claimed.
Deductions for qualified tips and overtime pay will be effective through at least December 31, 2028. For taxpayers who can claim these benefits, the deductions could significantly reduce their total tax burdens.
In addition to tax breaks for employees receiving tips and overtime wages, OBBBA has also enacted Section 530A, which calls for the creation of “Trump accounts.”
Trump accounts are designed to serve as tax-advantaged custodial accounts that are opened for children under the age of 18. Rather than requiring that contributions be used toward certain educational expenses (as is the case with a traditional 529), the funds for these accounts can be used in any way the beneficiary sees fit.
Under Trump accounts, it is possible to contribute up to $5,000 annually until the year the beneficiary turns 18 — and there is no tax on income earned on the account. Instead, taxation only occurs when the funds are distributed (after the beneficiary turns 18).
Why does this matter for employers? Because under OBBBA, employers are permitted to make tax-free contributions of up to $2,500 to employees' Trump accounts. Meanwhile, the OBBBA has also created a so-called pilot program that provides up to $1,000 in contributions for children with a Social Security number who are born between 2025 and 2028.
For employers with tipped workers and/or workers who receive overtime pay, it's important to ensure that pay is properly documented and reported for tax purposes—especially with these new provisions in place. For workers opening Trump accounts, this may also be a good time to consider making contributions as a means of taking advantage of the tax benefits while supporting workers.
For individuals receiving overtime/tipped pay and/or those with dependents, it's important to consider how these provisions might affect you. Specifically, be sure to keep detailed documentation on your tipped and overtime pay so that you can properly claim any eligible deductions come tax time. If you wish to take advantage of tax-free investment in a Trump account for a dependent, now could also be a good time to look into opening an account. If you have a child who was born this year or have one due in the coming year, you may also want to see if you could qualify for the $1,000 Trump account bonus.
As such a major bill with so many different provisions, figuring out how OBBBA will impact you (and your business, if applicable) can be challenging—especially if you don't have an explicit background in taxation or finance. The good news? Many businesses and individuals alike will benefit from the tax provisions and “Trump accounts” covered in OBBBA. The key, of course, is knowing how to take advantage of the benefits that may be available to you.
If you're seeking further guidance in understanding OBBBA as it relates to your specific situation, it's time to meet with your client service executive. In consultation with a tax professional, you can get personalized advice and develop a game plan alongside a knowledgeable professional.
If you are looking for more guidance in understanding the impact of OBBBA on your individual and/or business taxes, please contact our tax department.