OBBBA: Balancing Employee Benefits & Compliance for Business Growth

For forward-thinking business owners like you, supporting your team isn’t just the right thing to do, it’s a strategic priority. At Shah Tax & Accounting Services, we know that strong employee benefits drive retention, morale, and productivity. That’s why it’s essential to understand how the recently signed “One Big Beautiful Bill Act” (OBBBA), effective as of July 4, 2025, reshapes the benefits landscape. While the legislation introduces new complexities, it also opens the door to significant opportunities for businesses that act early. This guide focuses on the employee benefit provisions of the OBBBA, like enhanced family leave, childcare support, and student loan repayment, and how you can use them to build a more competitive, engaged workforce. The specific topics we cover are listed below, enjoy reading the entire post or jump to any section:

• Permanent Paid Family and Medical Leave (PFML) Tax Credit
• Enhanced Dependent Care and Employer-Provided Childcare Programs
• Permanent Student Loan Repayment Assistance (Section 127 Plans)
• Other Key Changes to Keep on Your Radar

Understanding the New Landscape

The One Big Beautiful Bill Act (OBBBA) significantly alters business taxation, affecting everything from payroll to benefits. Detailed IRS guidance is still pending, so businesses are navigating uncertain territory. A key challenge is the potential divergence between federal and state/local tax laws, as many states won’t address conformity until their 2026 legislative sessions, with full responses potentially taking two or more years. Businesses must conduct a state-by-state analysis to understand the specific impact.

Beyond Compliance: Leveraging Benefits for Your Team

While the OBBBA presents compliance adjustments, it also introduces several enhancements to employee benefits that, when strategically implemented, can significantly boost employee satisfaction, morale, and retention. This isn’t just about adhering to new rules; it’s about smart human capital management.

Let’s explore some key benefits that can directly impact your team and, by extension, your bottom line:

• Permanent Paid Family and Medical Leave (PFML) Tax Credit:

  • What’s New: This is truly fantastic news for businesses committed to supporting their employees. The OBBBA makes the PFML tax credit permanent, removing its previous expiration date at the end of 2025. Even better, you can now claim this credit not just for wages paid during qualifying leave, but also for a percentage of premiums paid for PFML insurance policies, even if no leave is taken! The required work tenure for employees to qualify for the credit is also reduced from one year to just six months. These changes apply to taxable years beginning January 1, 2026.
  • What This Means for Your Business: This permanence offers incredible certainty for your long-term tax planning. By allowing the credit for insurance premiums, the OBBBA actively encourages broader adoption of paid leave benefits, recognizing and rewarding your proactive efforts to provide this crucial support.
  • Example: Imagine you’re a small manufacturing firm looking to attract and retain skilled workers in a competitive market. Historically, offering comprehensive PFML might have seemed daunting. Now, with the credit made permanent and applicable to insurance premiums, you can confidently invest in a robust PFML insurance policy. This not only offers a valuable safety net for your employees during critical life events but also provides a consistent tax credit for your business, making it a sustainable and attractive part of your compensation package. This commitment to employee well-being can be a powerful recruitment and retention tool.

• Enhanced Dependent Care and Employer-Provided Childcare Programs:

  • What’s New: For tax years beginning after December 31, 2025, the OBBBA significantly increases the support for working families. The maximum annual exclusion for dependent care flexible spending accounts (FSAs) jumps from $5,000 to $7,500 ($3,750 for married individuals filing separately) . Furthermore, the employer-provided childcare credit is substantially increased: the maximum annual credit can now reach $500,000 (or an impressive $600,000 for qualifying small businesses). The percentage of qualifying expenses covered also sees a boost from 25% to 40% (or 50% for qualifying small businesses). All these maximums are indexed for inflation.
  • What This Means for Your Business: These measures are a clear signal to invest more deeply in your workforce. By making it easier for your employees to manage dependent care expenses, you can truly enhance recruitment and retention efforts and potentially improve overall employee productivity and work satisfaction. When employees feel supported in balancing work and family, they are more engaged and less likely to seek opportunities elsewhere.
  • Example: Consider a marketing agency in the New York/New Jersey metro area where childcare costs are a major concern for many employees. By leveraging the substantially increased employer-provided childcare credit, the agency could now afford to implement a significant subsidy program for employee childcare, or even explore partnerships with local childcare centers. This tangible support directly addresses a major financial stressor for employees, boosting their morale and loyalty, and making the agency a top choice for talent.

• Permanent Student Loan Repayment Assistance (Section 127 Plans):

  • What’s New: The OBBBA provides a major win for both employers and employees by making permanent the federal income tax exclusion for certain employer payments of student loans. This exclusion, previously capped at $5,250 annually, now permanently includes student loan repayment, with the annual limit indexed for inflation after 2026.
  • What This Means for Your Business: In today’s competitive labor market, especially for younger professionals entering the workforce, this is an incredibly powerful tool for attracting and retaining talent. Offering tax-free contributions toward an employee’s student loan debt can be a highly appealing benefit, demonstrating your commitment to their financial well-being.
  • Example: A growing software development firm often competes for top-tier graduates who are burdened by substantial student loan debt. By offering a permanent, tax-free student loan repayment program up to the $5,250 annual limit, this firm’s compensation package immediately stands out. It’s a direct, impactful benefit that speaks to a critical need for many employees, fostering strong loyalty and differentiating the firm as an employer of choice.

Other Key Changes to Keep on Your Radar:

While the above benefits offer exciting opportunities, the OBBBA also brings other important changes that require your attention and strategic planning:

• Payroll System Adjustments and Reporting: You’ll need to update your payroll and reporting systems to comply with new IRS rules, though payroll vendors are currently “scrambling” to integrate these changes. For tax year 2025, employers are authorized to “approximate” qualified tips and overtime compensation, but expect changes to Forms W-2 and 1099 with new reporting fields. A word of caution: the Treasury is mandated to prevent abuse, so avoid “schemes” to reclassify income or restructure employee classifications solely to exploit deductions, as such actions are “fraught with risk” and may violate FLSA compliance.
• Increased 1099 Reporting Threshold: Be prepared for the Form 1099-NEC and 1099-MISC reporting threshold to increase from $600 to $2,000 for payments made after December 31, 2025. This should reduce some of your reporting burdens for smaller payments to independent contractors.

Your Trusted Navigator: How Shah Tax & Accounting Services Can Help

Unpacking OBBBA is more than just understanding tax law, it can be a powerful tool to reshape how you support and retain your employees. At Shah Tax & Accounting Services, we’re here to help you turn these regulatory changes into real advantages for your team. Whether it’s consulting on your benefits strategy, navigating new payroll rules, or ensuring state-level compliance, we provide the clarity and confidence you need to act decisively. Here’s how we can partner with you to navigate these changes:

• Proactively Assess and Strategically Plan: We can help you evaluate and adapt your existing compensation and benefits programs and administrative practices to align with new tax obligations. We’ll assist in updating your long-term tax projections and financial models to account for these changes.
• Explore Opportunities: From restructuring compensation strategies to ensuring you’re maximizing new benefit-related credits, we can help you explore all the opportunities the OBBBA presents.
• Navigate State-Level Divergence: Given the potential disconnects between federal and state tax codes, our state-by-state analysis will be crucial to ensure you’re prepared for all filing requirements, including potential extensions for state returns.
• Ensure Payroll and Reporting Compliance: We’ll guide you through the necessary payroll system adjustments and new reporting requirements for Forms W-2 and 1099, helping you build internal methods to track necessary data.
• Mitigate Risks: We’ll help you understand the nuances of the law, ensuring you avoid any problematic “schemes” and remain fully compliant with FLSA and other regulations. Cross-departmental collaboration (payroll, accounting, tax) is key to understanding the “ripple effect” of these changes, and we facilitate that holistic view.

Don’t let complexity hold you back from offering the benefits your workforce values most. Contact us today to explore how you can use the OBBBA to build a stronger, more resilient team—and a stronger business.