On July 4th, President Trump signed the One Big Beautiful Bill (“OBBB”) into law. The OBBB is a broad tax bill covering many aspects of tax law. While its primary aim is to update the 2017 Tax Cuts and Jobs Act (TCJA), it also includes a variety of new tax provisions that would affect individuals, small and large businesses, and cross-border transactions. In this tax update, we outline some of the business tax changes in the OBBB.
Permanent Pass-Through (Qualified Business Income) Deduction
The OBBB permanently extends the deduction for Qualified Business Income (QBI) at the existing 20% rate, which under the TCJA was set to expire at the end of 2025. QBI consists of certain domestic business income earned by pass-through entities, such as limited liability companies (LLCs), general and limited partnerships, sole proprietorships, and S corporations. If your business is considered a specified service trade or business (SSTB) such as law, healthcare, consulting, or accounting, the phaseout thresholds have increased to:
There’s also a new $400 minimum deduction if you have at least $1,000 in qualified business income and otherwise qualify, even if the standard 20% calculation would give you less. Both the $400 and $1,000 amounts will increase in line with annual inflation.
Form 1099 Reporting
The OBBB changes the reporting threshold for Forms 1099‑NEC (Nonemployee Compensation) and 1099‑MISC for business payments reporting by increasing the reporting threshold from its current level of $600 (which has been the reporting level since 1954) to $2,000 per payee per year. In addition, the reporting level will now increase in line with annual inflation. This change comes into effect for tax year 2026 and tax years thereafter.
The OBBB also introduced a new style 1099 reporting form which must be used when reporting deductions such as tip deductions up to the designated limit, overtime pay deductions, car loan interest deductions, and the new excise tax on remittances.
The OBBB makes changes to the reporting levels for Form 1099K. This form is used for third-party network transactions that go through apps such as Venmo or PayPal. Third parties covered by the 1099K reporting requirement are required to report payments that exceed both $20,000 and 200 transactions per payee in a calendar year. This is a considerable increase on the previous reporting of payments in excess of $600 in aggregate.
No Tax on Tips
The OBBB introduces changes to both the reporting of tips and the deduction of tip income for employees who work in service industries in which workers customarily and regularly receive tips. Tips are restricted to cash tips, and we await guidance on whether tips paid by credit card will be included within the no-tax-on-tips rules.
These rules include the fact that the employee must have a valid Social Security number. The deduction is capped at $25,000 per year. This amount is reduced by $100 for each $1,000 by which the taxpayer’s modified adjusted gross income (“MAGI”) exceeds $150,000 ($300,000 in the case of a joint return). Although the qualifying tips will not be subject to federal income tax, the tips are subject to social security and Medicare taxes. The employer will need to include the employee’s total cash tips and qualifying occupation on the employee’s Form W-2. This tax benefit is only around until the end of 2028 when it expires.
No Tax on Overtime Pay
Under The OBBB, qualifying workers can now deduct overtime pay from their gross income. To qualify, an employee must earn overtime as an hourly worker and have a valid Social Security number. The deduction is capped at $12,500 each year for a worker who files as single, or $25,000 per year for a worker who is married and filing jointly. The deduction starts to phase out once the worker’s MAGI exceeds $150,000 for a single filer or $300,000 for joint filers. As with the deduction for tips, the employer will need to include the worker’s total qualified overtime compensation separately on Form W-2.
It is not all good news for the hourly workers as there are some limitations to no-tax-on-overtime. This deduction applies only to the mandatory premium pay under Section 7 of the Fair Labor Standards Act. Overtime pay that exceeds federal requirements due to state laws or union contracts does not qualify for the deduction. This tax benefit is only around until the end of 2028 when it expires.
Corporate Charitable Contribution Deductibility
The OBBB makes changes that affect the deductibility of charitable contributions by businesses. From tax year 2026, corporations can deduct only those charitable contributions exceeding 1% of their taxable income. The current 10% cap on deductions stays the same. Corporate contributions exceeding the 10% ceiling can be carried forward for five years; however, amounts disallowed due to the new 1% floor can only be carried forward if the aggregate corporate contributions exceed 10% of taxable income, including the disallowed amounts.
If you have any further questions regarding the business tax provisions of the OBBB, please contact Ian Shane.
