KEY PROVISIONS OF H.R.1: THE ONE BIG BEAUTIFUL BILL ACT

President Trump signed The One Big Beautiful Bill Act (OBBB) into law on July 4, 2025. The legislation is an extensive tax bill that includes hundreds of provisions. For many of these provisions, we are still awaiting further regulatory guidance that agencies will issue as part of the implementation phase.

However, there are some provisions that have a clear and immediate impact on PEOs and their clients. I wanted to provide a brief overview of some of the most pertinent sections that NAPEO is tracking. This is not a comprehensive list of every OBBB provision you should monitor, but the most relevant to PEOs. For more information and a deeper dive on the OBBB, check out the webinar recording we held in June. You can access NAPEO’s members-only webinar archive at napeo.org/events/virtual-events-education/

EMPLOYEE RETENTION TAX CREDIT (ERTC)

The final language in the OBBB does not include changes to the ERTC for 2020 or quarters 1 and 2 of 2021. However, the language does include changes to the ERTC for quarters 3 and 4 of 2021 that may impact PEO claims.

The bill accelerates the deadline for claims for quarters 3 and 4 of 2021 to January 31, 2024. Meaning claims filed for these quarters after January 31, 2024, will not be paid. If, however, a PEO made a claim after January 31, 2024, and the IRS has already sent a refund check, then the accelerated deadline does not apply to that claim.

The bill also extends the statute of limitations for IRS assessments for quarters 3 and 4 of 2021. The new expiration for assessments has changed to April 15, 2028, or six years after the date on which the ERTC claim was made, whichever is later.

NO TAX ON TIPS

The OBBB eliminates tax on tips. PEOs will likely need to address this issue with their clients. The no tax on tips provision is for occupations which customarily received tips prior to 2025 such a restaurants, salons and food delivery drivers. In the coming months additional guidance will be released by the IRS and Treasury including a list of industries to clarify eligibility. The deduction is limited to $25,000 per year in qualified tips and is subject to an income limitation which phases out for taxpayers with modified adjusted gross income (MAGI) exceeding $150,000 ($300,000 for joint filers). Tipped workers are still required to report their tips to their employers and tips will still be subject to Social Security and Medicare taxes. The deduction is a temporary provision and applies to tax years 2025 through 2028.

NO TAX ON OVERTIME

The bill allows individuals to deduct up to $12,500 and joint filers $25,000 in qualified overtime compensation. Qualified overtime is defined as required by the Fair Labor and Standards Act (FLSA) definition and does not include overtime not required by the FLSA such as mandated by state law or in a collective bargaining agreement. Similar to the No Tax on Tips provision there is a phaseout for high earners. The deduction begins to phase out for single filers with a modified adjusted gross income over $150,000 ($300,000 for joint filers) and includes the same effective dates, tax years 2025-2028. This deduction only affects federal income tax, not payroll taxes (Social Security and Medicare/FICA), which will still be withheld as usual from all overtime pay.

TRUMP ACCOUNTS

One provision that might be of benefit to PEOs as a potential service to offer their clients is the newly created savings accounts provided in the OBBB. Trump Accounts were created to encourage savings on behalf of children born between 2025 and 2028 by providing tax free growth. Each account will receive a one-time payment of $1,000 in seed money from the federal government while allowing up to $5,000 in annual after-tax contributions including up to $2,500 by the taxpayer’s employer. If an employer chooses to provide an employee with up to $2,500 for a Trump Account, it will not count towards their gross income and thus is not subject to tax at the employee or employer levels. The account grows tax-deferred until account owners make withdrawals, which can only start at age 18, and the account at that point essentially follows the rules in place for individual retirement accounts (IRAs).

NAPEO members visited Capitol Hill in May during PEO Advocacy Day to ensure our industry’s voice was heard.