As a small business owner, or, really, a business owner of any kind, a large component of your job is ensuring the smooth operation of your business and securing compliance with any sort of rules and regulations that your business may need to be compliant with. Of course, while you can easily write out those things in a relatively brief sentence, doing them is another story. Compliance and keeping up with legislative changes can sometimes feel like another full-time job on top of the full-time job that is running a business. This can create a lot of unnecessary stress and confusion, especially when it feels like there aren’t enough resources at your disposal or, sometimes, that there are too many.
At Payday HCM, we’re very familiar with this kind of stress and confusion. We have plenty of clients who approach us with questions about changes that are about to happen or that have already happened, looking for guidance on how to remain compliant or just information on the kinds of things that they can expect. One such case was the passage of the Tax Cuts and Jobs Act back in 2017, which introduced a number of changes that affected small businesses across the country. Now, the “One Big Beautiful Bill Act” is here not only to make a number of changes from the TCJA, but also to introduce some new changes of its own.
So, in this article, we’ll be going over the “One Big Beautiful Bill Act” and how the OBBBA will impact small businesses. We won’t cover every change within the OBBBA, but instead, will focus on three main points:
- Overtime and Tips Tax Deductions
- Upcoming: Increase in Form 1099 Threshold
- Expenses Write-Offs, Research and Development Tax Credits
We’ll go over how the OBBBA affects these three things and how the changes will affect small businesses. By the end of this article, you’ll have a better understanding of the OBBBA and a clearer picture of how it will impact your small business.
Overtime and Tips Tax Deductions
To start, we’ll first be going over the provisions in the bill surrounding taxes on overtime pay and tips.
Does the ‘One Big Beautiful Bill Act’ Eliminate Taxes on Tips and Overtime?
Under Chapter 2, sections 70201 and 70202, taxpayers will be eligible for a tax deduction on any tips or overtime pay earned. For tips, the deduction is capped at $25,000 and begins to phase out once a taxpayer’s income reaches $150,000 ($300,000 for joint filers) or more. The overtime deduction is capped at $12,500 ($25,000 for a joint return) and similarly begins to phase out at $150,000 ($300,000 for joint filers).
The tip tax deduction applies only to “qualified tips,” which include any cash, credit card, or tips received through a tip-sharing arrangement in, “an occupation which customarily and regularly received tips.” As outlined by the bill, the Secretary of the Treasury will publish a list of occupations that fall within these guidelines no later than 90 days after the bill’s passage.
Similarly, the overtime tax deduction only applies to “qualified overtime compensation” received by an individual, meaning the deduction is only applicable to any pay received in excess of an individual’s regular hourly rate (so, if it’s time and a half, the deduction only applies to the half). Both of these deductions are set to expire on December 31, 2028, and require a filer’s Social Security number to qualify.
What Do the Overtime and Tips Tax Deductions Mean For My Business?
While these deductions don’t necessarily directly affect businesses, as they are tax deductions for individual filers, this doesn’t mean they won’t impact your business in some manner. One thing for businesses to keep in mind is that these are deductions, not complete tax eliminations—this means employees’ paychecks won’t look any different than they did before, as the deduction is taken against gross wages when the employee files their personal tax return at year-end.
Communicating this detail with others within your organization will be crucial to ensure complete understanding of these changes. At the time of publishing this article, there isn’t much more information available: We are still awaiting official word from the Secretary of the Treasury on a list of qualified occupations and how Forms W-2 and 1099 will be changed to accommodate the bill’s reporting requirements.
Upcoming: Increase in Form 1099 Threshold
Next up, we'll cover how the OBBBA introduces changes to the issuing requirements for 1099s for 2026 and beyond.
What Is the Threshold for Issuing 1099s to Vendors?
A Form 1099 is issued by businesses to individuals or other businesses that they may have made payments for things like rent, compensation, interest, or other forms of income. The 1099—which includes different versions like the 1099-NEC for non-employer compensation, 1099-MISC for rent or royalty payments, and 1099-G for things like unemployment compensation—is sent by the payer to the recipient so that the recipient can include the income listed on the 1099 in their individual tax return.
Currently, the cap for issuing a 1099 is $600, meaning any payment made by a business to someone else that is equal to or more than $600 would require the business to also then provide a 1099 to that person come tax season. Under the "One Big Beautiful Bill Act," this threshold will increase to $2,000 starting in 2026. The threshold will then increase each year based on inflation, calculated by the cost-of-living adjustment (COLA).
Another change the OBBBA makes to 1099s that applies to tax years after December 31st, 2024, is the repeal of the de minimis rules for third-party network transactions. These changes applied to the Form 1099-K and largely affected how gig workers received income information from businesses they performed work for. The OBBBA reverts the reporting requirements back to $20,000 and 200 transactions in one tax year; the requirements were set to reach $600 starting in 2026 after having decreased year-over-year starting in 2021.
What Does the 1099 Threshold Increase Mean for My Business?
Many small businesses issue 1099s to a variety of individuals, businesses, vendors, or contractors for a variety of different services performed throughout the year. With the increase in this threshold coming in 2026, businesses will need to adjust how they keep track of what expenditures will require issuing a 1099.
There are a number of different software and service providers that can help businesses track and issue 1099s when the time comes. The provision in the OBBBA only makes changes to the threshold amount for issuing 1099s come 2026, so all other requirements for Form 1099 in terms of who should receive one and who needs to file one are still currently the same.
Expenses Write-Offs, Research and Development Tax Credits
Finally, we’ll go over how the “One Big Beautiful Bill Act” affects certain expenses write-offs and research and development tax credits.
What Is Bonus Depreciation? Can I Write Off R&D Costs?
The TCJA introduced two provisions that affect the kinds of things businesses are able to write off as permitted by the IRS to lower taxable profits. The TCJA introduced a provision that allowed businesses to write off the cost of assets immediately instead of over their “useful life” as previously permitted. This process is called bonus depreciation and has been set to phase out since 2022.
The OBBBA makes this provision permanent, allowing for 100 percent expensing of an asset the same year they were put into service. In addition, the expensing limit has been increased to $2.5 million, with a phase-out on expense amount beginning at $4 million.
The second provision affected how businesses claim tax credits on research and development costs. In 2022, Section 174 of the TCJA kicked in, requiring businesses to amortize (or gradually write off) their R&D costs over the course of five years. The OBBBA not only makes the expensing of R&D costs permanent, but also accelerates any remaining amortized amounts from 2022 to 2024.
How Do Bonus Depreciation and the R&D Credit Affect My Business?
Like the QBI deduction, these two provisions are largely going to impact individuals who were already taking advantage of them or had taken advantage of them in the past. Even still, new and current business owners alike will be able to utilize the bonus depreciation to write off expenses immediately with no amortization required.
The R&D credit will largely affect, as the name might suggest, businesses engaged in research or development of new products. These credits largely apply to businesses in the manufacturing industry, so business owners in that sector should learn more about how they can receive R&D tax credits come tax season.
Stay In-the-Know On Legislation That Impacts Businesses
Legislative and regulatory updates that affect businesses seem to happen almost every day. The OBBBA is just the latest example of a large-scale piece of federal legislation that includes a number of provisions that will affect businesses, small and large. As a business owner, you don’t want to be caught off guard by these changes, but it can also feel difficult trying to keep up with all the changes taking place. With the information provided in this article, you’ll have the knowledge you need to handle the changes associated with the OBBBA and lead your business with confidence.
It’s not easy keeping up with all the different regulatory changes that take place throughout the year. As a business owner, it’s important to find the balance between ensuring you are aware of any upcoming changes that may affect your business while also focusing on the other aspects of running your business. With the right HCM partner, though, you can stop worrying about being caught off-guard by legal or regulatory changes and stay focused on growing your business. Learn more about how Payday’s payroll, HR, and benefits services—including our ability to help file 1099-NECs and 1099-MISCs— can help your business become the best version of itself.
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