What the One Big Beautiful Bill Means for HR
- Brittney Simpson
- 1 day ago
- 6 min read
Updated: 8 hours ago
Looking for clarity on how recent policy changes might affect your business? You're not alone.
The One Big Beautiful Bill Act (H.R. 1) that passed in 2025 touches on tax policy, healthcare, and workforce regulations—areas that directly impact how you manage your team and operations. While we're still seeing how all the pieces fit together, the changes could influence everything from payroll to benefits to daily HR processes.
Your employees are probably asking questions about what this means for their paychecks, benefits, and job responsibilities. That's where having a clear understanding of the changes becomes essential.
In this post, we'll walk through the key updates, explore how they might affect your business, and share practical steps you can take right now to stay on top of things. Because when you understand what's happening, you can answer your team's questions with confidence and keep your business moving forward smoothly.
At Savvy HR Partner, we believe that staying informed shouldn't be overwhelming, it should be empowering.
Here’s your first section rewritten in your tone—professional, clear, and human—with a focus on being useful and easy to digest for business owners and HR leaders:
1. Employee Benefits: Tax Relief and New Savings Options
The bill enhances employee benefits, boosting take-home pay and savings options, but requires proactive communication and planning.
Permanent Tax Cuts: The 2017 Tax Cuts and Jobs Act’s lower individual tax rates, doubled standard deduction, and Child Tax Credit ($2,500 per child through 2028) are now permanent. This increases employees’ disposable income, easing wage hike pressures for business owners.
Effective Date: TBD.
Next Steps: HR, prepare to explain these tax benefits in Q1 2026 payroll updates. Business owners, factor this relief into 2026 compensation planning to optimize labor costs.
Tax-Free Tips: Federal income tax on tips is eliminated, a major win for service industry workers, improving retention in hospitality and retail.
The tip deduction is allowed for:
qualified tips received by workers in an occupation that customarily receives tips
employees with a work-eligible Social Security number
employees receiving a W-2
independent contractors receiving a 1099-K or 1099-NEC
taxpayers reporting tips on Form 4137
There is a $25,000 limit on this deduction, and it is slowly phased out for individuals earning over $150,000 ($300,000 for joint returns). Employees who are considered highly compensated or with an earned income exceeding the dollar amount under IRC section 414(q)(1)(B)(i) are ineligible to receive the deduction.
Effective Date: Retroactive to January 1, 2025
Next Steps: HR, update payroll systems to ensure tip income is excluded from federal tax withholding. Business owners, promote this benefit to attract tipped workers.
Tax-Free Overtime: Overtime pay for hourly workers is exempt from federal income tax, incentivizing extra hours and boosting earnings.
The deduction applies to the “half” portion of “time and a half.”
The total deduction that can be claimed is capped at $12,500 ($25,000 for a joint return).
The full deduction is allowed for individuals with adjusted gross incomes up to $150,000 ($300,000 for joint returns).
The allowable amount of deduction slowly reduces by $100 for every $1,000 of income over those thresholds.
Effective Date: Retroactive to January 1, 2025
Next Steps: HR, adjust payroll software by late 2025 to reflect tax-free overtime. Business owners, use this to encourage overtime in high-demand periods, reducing hiring needs.
ABLE Accounts Expanded: Contribution limits for ABLE accounts increase, allowing employees with disabilities to save more for expenses.
Effective Date: TBD.
Next Steps: HR, update benefits materials by Q1 2026 to promote ABLE accounts. Business owners, ensure inclusivity by budgeting for benefits education.
Health Savings Accounts (HSAs): HSAs now cover direct primary care fees and have inflation-adjusted contribution limits, making them more appealing.
Effective Date: TBD.
Next Steps: HR, revise benefits guides by Q4 2025 to highlight HSA changes. Business owners, consider HSAs to reduce health plan costs.
How It Works
It’s important to note that these provisions are classified as deductions. Taxes on tips and overtime earnings will continue to be withheld and later reconciled against the total tax liability when eligible employees file their annual returns. These deductions do not exempt wages from Social Security or Medicare tax, nor do they impact state or local tax requirements.
Once the IRS issues updated guidance on how to report overtime wages on the 2025 Form W-2, necessary adjustments will be made within your payroll system. These updates will be reflected in your W-2 previews as we approach year-end. Employers should continue to report recorded tips on Form W-2, Wage and Tax Statement, per IRS requirements.
I’m closely monitoring legislative updates and will share guidance as changes occur to ensure continued compliance and clarity.
If you have any questions or need support applying these updates within your payroll platform, feel free to reach out.
2. Compliance and Workforce Rules: Navigating New Mandates
New work requirements and immigration policies demand robust compliance systems.
Medicaid Work Requirements: Able-bodied adults aged 19–64 without young children must work 20 hours weekly to maintain Medicaid eligibility.
Effective Date: Likely phased in starting July 1, 2026, as Medicaid changes often include implementation periods for states to adjust.
Next Steps: HR, develop work-hour verification templates by Q2 2026. Business owners, budget for potential turnover if employees lose coverage.
SNAP Work Requirements: Similar 20-hour work rules apply to SNAP for adults without dependents.
Effective Date: Assumed July 1, 2026, aligning with federal program cycles.
Next Steps: HR, offer scheduling flexibility by mid-2026 to help employees comply. Business owners, invest in retention programs like job training.
Immigration Enforcement: Increased border security funding tightens I-9 compliance, potentially reducing immigrant labor.
Effective Date: Likely immediate or Q1 2026, as enforcement funding is often deployed quickly.
Next Steps: HR, audit I-9 processes in Q4 2025. Business owners, assess workforce risks and explore domestic hiring by Q1 2026.
What to Do: HR, prioritize compliance updates in Q4 2025, focusing on I-9 and work-hour documentation. Business owners, plan for labor market shifts and monitor USCIS updates for enforcement timelines.
3. Healthcare Costs: Addressing Coverage Gaps
The bill’s healthcare changes could increase costs and affect employee well-being.
Medicaid and ACA Cuts: A $930 billion Medicaid cut over a decade and the expiration of enhanced ACA premium tax credits may leave 11.8 million without Medicaid and 3 million without marketplace coverage.
Effective Date: Medicaid cuts likely phase in from FY 2027 (October 1, 2026), with ACA credits expiring December 31, 2025.
Next Steps: HR, evaluate benefits plans in Q3 2025 to address coverage gaps. Business owners, budget for higher health plan costs in 2026–2027.
Long-Term Care Staffing Moratorium: A moratorium until 2034 on minimum staffing standards for Medicare/Medicaid long-term care facilities may ease costs but strain workers.
Effective Date: Likely immediate upon passage (2025), as moratoriums are often effective on enactment.
Next Steps: HR, monitor staff workloads in Q1 2026. Business owners, balance cost savings with retention strategies.
What to Do: HR, explore telehealth and HSAs by Q4 2025 to offset coverage losses. Business owners, prepare for 2026–2027 cost increases and prioritize wellness programs. Track CMS updates for Medicaid timelines.
4. Economic Opportunities and Pressures: Balancing Growth and Stability
The bill’s economic provisions offer growth but add pressures.
Business Growth Incentives: Full expensing for new domestic factories and revitalized Opportunity Zones spur job creation.
Effective Date: Likely January 1, 2026, for the 2026 tax year, as business tax incentives align with fiscal cycles.
Next Steps: HR, scale recruitment in Q4 2025 for 2026 growth. Business owners, plan expansions using tax breaks, targeting Opportunity Zones.
Pressure on Low-Income Workers: Medicaid, SNAP, and ACA cuts increase financial stress, though tax-free tips and overtime provide some relief.
Effective Date: Cuts begin 2026–2027; tax relief starts January 1, 2026.
Next Steps: HR, expand financial wellness programs by Q1 2026. Business owners, invest in retention to mitigate turnover.
What to Do: HR, prepare for hiring surges in Q4 2025. Business owners, leverage tax incentives for growth while supporting low-income workers. Monitor Treasury updates for incentive details.
5. DEI Focus: Supporting All Employees
The bill’s cuts disproportionately affect low-income, rural, and marginalized groups, including immigrants. Tax-free tips and overtime help some, but not all.
Effective Date: Cuts phase in from 2026–2027; tax relief starts January 1, 2026.
Next Steps: HR, develop multilingual resources by Q1 2026. Business owners, foster inclusive cultures to retain diverse talent.
What to Do: HR, prioritize inclusive benefits in Q4 2025. Business owners, reinforce DEI commitments to maintain morale. Track program changes for affected employees.
Moving Forward with Confidence
The One Big Beautiful Bill Act is a complex mix of opportunities and challenges. Business owners, you can drive growth with tax breaks and incentives while managing new costs. HR, you’re the bridge for employees navigating these changes. By updating systems, planning for 2026, and prioritizing well-being, you’ll build a stronger business and team. Start now—your employees and profits are counting on you.
How is your business preparing for 2026? Share your plans in the comments, and join our newsletter for more insights to stay ahead!
Final Takeaways: What HR Should Do Now
Update Benefits Communications: Reflect changes to tax credits, ABLE accounts, HSAs, and tax-free income provisions.
Enhance Compliance Systems: Audit I-9 processes and prepare to support employees navigating new public benefit requirements.
Revisit Recruitment Strategy: If you're expanding, begin building your talent pipeline early.
Monitor Healthcare Costs: Understand how coverage shifts may affect your plan offerings.
Strengthen Employee Support: Expand wellness, financial, and mental health resources to help employees manage economic pressure.