How The One Big Beautiful Bill Impacts You And Your Business

The One Big Beautiful Bill introduces tax changes that begin affecting returns filed in 2026. While the bill includes many provisions, several directly impact business owners, especially those with employees, contractors, rental income, or higher overall income.

This article focuses only on what is important to business owners, what changed, and why planning now matters.

Payroll Changes Business Owners Need to Understand

The bill introduces new deductions tied to overtime pay and tips, which directly affects how payroll should be tracked.

Note: It’s important to understand that these changes apply only to federal income tax. Overtime pay and tips are still considered wages and are still subject to state income tax, Social Security tax, and Medicare tax. Payroll withholding does not change, and employees should not expect an immediate increase in take-home pay. The benefit is applied when the employee files their federal tax return, assuming the income was properly reported and documented throughout the year.

Overtime Pay

Employees may now qualify for a tax deduction related to qualified overtime compensation, but this does not mean overtime wages are tax-free.

Key points business owners should know:

• Only the overtime premium portion qualifies, not the employee’s regular pay
• The deduction is capped at $12,500 per year per employee
• For married employees filing jointly, the cap is $25,000
• The deduction begins to phase out when income exceeds $150,000 for single filers or $300,000 for joint filers

From an employer standpoint, this places greater importance on accurate payroll setup. Overtime must be calculated correctly, and payroll systems must clearly separate regular wages from overtime premiums. If overtime is not properly classified, employees may be unable to claim the deduction when they file their tax returns.

Tip Income

For businesses with tipped employees, the bill introduces a new deduction for qualified tips.

Important details:

• Tips are still fully reportable income
• The deduction applies only to occupations that customarily receive tips
• The maximum deduction is $25,000 per year
• The same income phase-outs apply as overtime

For employers, this reinforces the importance of accurate tip reporting, clear payroll documentation, and consistent recordkeeping. The deduction does not reduce payroll taxes and does not eliminate reporting requirements. Like overtime, the benefit is claimed on the employee’s federal tax return.

1099 Reporting Changes

The bill also updates how contractor payments are reported, reducing some administrative burden while keeping compliance responsibilities intact.

Beginning in 2026, businesses generally only need to issue a 1099-NEC or 1099-MISC when total payments to a contractor exceed $2,000 for the year, up from the long-standing $600 threshold. Starting in 2027, this amount will be adjusted annually for inflation.

This change means fewer small-dollar 1099s may be required, but businesses still need to track contractor payments throughout the year. Once the threshold is crossed, reporting is still required. Fewer forms do not eliminate the need for accurate records.

For payments processed through third-party platforms such as payment processors or online marketplaces, the reporting threshold returns to $20,000 and 200 transactions. This reduces unexpected reporting for smaller or occasional transactions, though income may still be taxable even if no 1099 is issued.

Employer-Provided Benefits and Tax Advantages

The bill also strengthens and extends several employer-related benefits that can be valuable tax tools when structured correctly.

Paid Family and Medical Leave

The One Big Beautiful Bill makes the Paid Family and Medical Leave tax credit permanent, giving business owners more certainty when offering leave benefits to employees.

One important update is how the credit can be calculated. In addition to claiming the credit based on wages paid to employees while they are on leave, employers may now choose to base the credit on insurance premiums paid for qualifying paid leave coverage.

To qualify for the credit, businesses must have a written paid leave policy in place that provides at least two weeks of paid family and medical leave for full-time employees, with a prorated amount for part-time employees. The policy must replace at least 50% of the employee’s normal wages during leave, and the credit generally applies to employees who earned $96,000 or less in the prior year. Beginning in 2026, eligible employees must also be customarily scheduled to work at least 20 hours per week.

When these requirements are met, the credit generally ranges from 12.5 percent to 25 percent of qualifying wages paid or insurance premiums paid. This allows business owners to offer paid leave in a more predictable and manageable way while still receiving a meaningful tax benefit.

Childcare and Dependent Care Benefits

Limits for employer-provided childcare and dependent care assistance have increased. These benefits can reduce taxable income for employees while providing tax advantages for employers, but they require proper payroll setup and reporting to be effective.

Student Loan Repayment Benefits

Employer-provided student loan repayment assistance is now permanently excluded from employee taxable income, with inflation adjustments beginning in 2026. When structured correctly, this can be a valuable retention and recruiting tool.

Major Investment Incentives

After payroll and benefits, the bill also brings several changes that can significantly affect businesses that invest in equipment, technology, or improvement projects. These provisions can influence the timing of purchases and the best way to structure deductions.

One major change is the permanent return of 100% first-year bonus depreciation for qualified property placed in service after January 19, 2025. In plain terms, certain equipment, vehicles, and software purchases may once again be deducted in full in the year they are placed in service, rather than being spread over time. This matters most for businesses planning upgrades or expansion, because timing a purchase can meaningfully change the tax result.

The bill also allows businesses to immediately deduct 100 percent of domestic research and development costs in the year they are incurred. The prior rule that forced many businesses to spread domestic R&D costs over five years is repealed for domestic expenses. This is relevant for businesses that build or improve products, develop software, or invest in technical process improvements.

In addition, Section 179 expensing has expanded. The maximum amount a small business can expense increases to $2.5 million, with the phase-out threshold raised to $4 million. For many businesses, this creates more flexibility to expense purchases sooner, especially when paired thoughtfully with bonus depreciation.

Changes to Key Business Deductions

The bill also impacts several core deductions that affect how business owners plan around profits, financing, and state taxes.

The 20 percent Qualified Business Income deduction for pass-through businesses (Section 199A) is now permanent. While there was discussion in some places about a possible higher percentage, the practical outcome business owners should plan around is the permanent 20% deduction, along with more stable rules for how high-income phase-ins apply. This provides long-term clarity for many LLCs, S corporations, partnerships, and sole proprietors.

Another meaningful change is how business interest expense limits are calculated under Section 163(j). The calculation becomes more favorable by returning to an EBITDA-style standard, which generally allows some businesses to deduct more interest expense than under the more restrictive EBIT approach. This matters most for businesses that finance equipment, carry debt as part of growth, or operate in capital-intensive industries.

For many business owners who file personally, the SALT deduction cap also increases. The cap rises from $10,000 to $40,000 for taxpayers with income under $500,000. This may be especially relevant for owners in higher-tax states, though the best benefit still depends on the full tax picture and how deductions interact.

Income Thresholds Matter More for Business Owners

One of the most important themes of the bill is how income thresholds affect deductions and benefits.

Many tax advantages begin to phase out once income exceeds certain levels. For business owners, this is especially important because income often comes from multiple sources, including business profits, rental income, and investment income. When combined, total income can reduce access to deductions, limit planning options, and change which strategies are most effective.

A strong business year can unintentionally reduce tax benefits if planning is not done early.

What Business Owners Should Do Now

Even though many changes apply starting in 2026, preparation should happen well before year-end.

Business owners should review payroll setup, especially around overtime and tips, confirm contractor tracking and 1099 processes, evaluate whether employer benefits are structured efficiently, and understand how total income affects deductions and planning options. Waiting until tax season often removes choices that could have been used earlier in the year.

Waiting until tax season often removes choices that could have been used earlier in the year.

The Big Beautiful Bottom Line

The One Big Beautiful Bill does not change everything, but it makes how your business operates and reports income more important than ever.

For business owners, the biggest takeaways are clear. Payroll accuracy matters more. Income thresholds have a greater impact on planning. Employer benefits can be powerful when used correctly. And fewer forms do not mean less responsibility.

The businesses that benefit most will be the ones that plan proactively instead of reacting after the year ends.