On July 4, 2025, President Trump signed into law a nearly 900-page bill that includes several provisions that will affect private-sector employers, including increased tax deductions, changes to Medicare eligibility requirements, and increased challenges to immigration compliance.
Bonus Depreciation and IRC Section 179 Expense Limit
The new bill—formally entitled, “An Act to provide for the reconciliation pursuant to title II of H. Con. Res. 14,” but commonly referred to as the One Big Beautiful Bill Act (OBBBA)—reforms the United States’ current tax policies, moves away from clean energy incentives, and restricts eligibility for SNAP and Medicaid recipients.
Additionally, the OBBBA revived a portion of the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA temporarily provided 100% bonus depreciation of certain qualifying assets through 2022, at which point the bonus amount began falling by 20% each year until it was supposed to have phased out entirely at the end of 2026. The OBBBA reinstated the 100% bonus depreciation of assets that are acquired and placed in service after January 19, 2025. The OBBBA also increased the expense limit for Section 179 property to $2,500,000 with a $4,000,000 phaseout for properties placed into service after December 31, 2024.
“No tax” on Tips and Overtime
This provision doesn’t exempt tips and overtime wages from state or federal taxes, but it does allow certain employees to take special deductions on their federal tax return. As a result, from January 1, 2025, through December 31, 2028, employers will need to comply with new reporting requirements for “qualified tips” and “qualified overtime.”
Qualified tips are limited to cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024. Employers must file information returns with the Internal Revenue Service (IRS) and furnish their employees with statements showing employees’ occupation and their cash tips received. The IRS is required to provide additional guidance and a list of eligible tipped occupations by October 2, 2025.
Qualified overtime compensation is overtime required to be paid under Section 7 of the Fair Labor Standards Act (FLSA). Only the premium portion of an employee’s overtime compensation may be deducted. For example, if an individual is paid at a regular rate of $20 per hour and an overtime rate of $30 per hour, only the $10 per hour premium pay for overtime worked is eligible for the new tax deduction. From January 1, 2025, through December 31, 2028, employers will be required to file information returns with the IRS and furnish statements to their employees showing their respective total amount of qualified overtime compensation paid during the year.
Applicable employers may need to adjust their payroll systems to accurately track and report these amounts on their employees’ 2025 tax year Form W-2.
Dependent Care FSAs
As open enrollment season gets closer, employers will want to consider whether they will allow workers to contribute the new maximum amount to a dependent care flexible spending account (FSA). Beginning January 1, 2026, the cap for employees filing their federal income tax return with a filing status of single or married filing jointly will increase from $5,000 to $7,500. The annual contribution cap for employees filing their federal income tax return as married filing separately will increase from $2,500 to $3,750.
Employers aren’t required to allow workers to contribute the maximum amount to a dependent care FSA because contribution limits are determined by the employer’s plan design and may therefore be lower than the federal maximum. However, such benefits may help employers attract and retain employees, especially those with no remote or hybrid work schedules.
Employers that want to implement the increased limit to their FSAs should work with their benefits plan administrator now to timely communicate the changes to their employees. Many companies struggle with low FSA utilization rates simply because employees aren’t fully aware that the benefit is available to them. However, employers that allow employees to contribute to an FSA will need to satisfy nondiscrimination testing requirements, such as the 55% average benefits test. This test is designed to ensure that dependent care FSA benefits aren’t skewed in favor of higher-paid employees and requires that the average benefit for a non-highly compensated employee be at least 55% of the average benefit provided to a highly compensated employee.
ICE Budget
Notably, the OBBBA provides over $70 billion—or a 265% annual budget increase—in funding for Immigration and Customs Enforcement (ICE) and includes the following expenses:
- $45 billion for building new immigration detention centers; and
- $29.9 billion toward ICE’s enforcement and deportation operations.
That money will partially be used to hire 10,000 new ICE employees over the next five years. According to the Department of Homeland Security (DHS), this will allow the rate of deportations to increase to as many as 1 million per year. These increases are also expected to make ICE—which currently boasts 20,000 employees—one of the largest federal law enforcement agencies. For comparison, the FBI has 37,100 employees and the Drug Enforcement Administration (DEA) has approximately 10,000 employees throughout the world.
As a result, ICE is expected to ramp up workplace activities, including I-9 audits, inspections, and worksite raids, particularly in the agriculture, construction, hospitality, retail, and manufacturing industries. Employers may also see an increase in mass deportations, expanded detention infrastructure, and additional costs to legal immigration processes for their employees.
In the event of an I-9 audit or a worksite raid, you are encouraged to seek legal counsel. You should also familiarize yourselves and your employees of your rights and responsibilities. Finally, you should take proactive steps to minimize the chances of a raid or an audit occurring at your workplace by conducting an internal I-9 audit.
Medicaid
Although the Medicaid provisions of the OBBBA aren’t specifically addressed at employers, they may still have an effect on employee health benefits and require additional employer involvement in verifying employment or documenting work hours.
Effective October 1, 2026, Medicaid eligibility for immigrants is restricted to Lawful Permanent Residents, certain immigrants from Cuba and Haiti, and citizens of the Freely Associated States (the Marshall Islands, Micronesia, and Palau).
The OBBBA also imposes new work requirements on able-bodied adults, ages 19–64. Starting On January 1, 2027, these individuals must work at least 80 hours per month to maintain eligibility. Exemptions to this requirement include pregnant women, caregivers of children under 13, tribal members, and those with serious medical conditions.
Consequently, employers may need to adjust their onboarding, payroll, and benefits processes. In addition, employers will likely need to create a process for verifying or documenting their able-bodied employees’ work hours.
Ana Patricia Elizondo is an attorney with Monty & Ramirez, LLP, in Dallas, Texas, and can be reached at pelizondo@montyramirezlaw.com.