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Employer Benefit Enhancements Under the OBBBA: What Businesses Need to Know
- Kim Bernstein
- 5 days ago
- 5 min read
The One Big Beautiful Bill Act (OBBBA) doesn’t just change tax deductions, it also delivers a set of powerful updates for employers looking to offer competitive, tax-advantaged benefits.
These changes could impact how you structure employee perks, handle compliance, and position your business as a top choice for talent in today’s competitive job market.
In this guide, we’ll break down each benefit enhancement, the 2025 limits, who qualifies, compliance requirements, and practical ways to implement them.
Key OBBBA Employer Benefits in 2025
1. Childcare Flexible Spending Accounts (FSAs)
What’s New:
Annual contribution limits have been increased to $7,500 for 2025 (up from $5,000 under prior law).
Contributions remain pre-tax for employees and reduce payroll taxes for employers.
Limit will be indexed annually for inflation starting in 2026.
Why It Matters:
Increases employee take-home pay by reducing taxable wages.
Helps working parents offset rising childcare costs.
Example:
An employee contributing $7,500/year to a childcare FSA saves federal income tax, Social Security, and Medicare taxes on that amount. The employer also avoids paying payroll tax on it.
2. Student Loan Repayment Assistance
What’s New:
Employers can provide up to $5,250 per employee, per year in student loan repayment assistance tax-free.
OBBBA extends this exclusion through at least 2028.
Why It Matters:
This is a high-value benefit for younger talent carrying student debt.
Tax-free to the employee and deductible to the business.
Example:
Paying $200/month ($2,400/year) toward an employee’s student loan in 2025 can save them hundreds in taxes while positioning your business as an employer of choice.
3. Adoption Assistance
What’s New:
For 2025, employers can exclude up to $17,210 per adoption from an employee’s taxable wages.
Eligible expenses include adoption fees, court costs, attorney fees, and related travel.
Indexed annually for inflation.
Why It Matters:
Expands support for employees growing their families through adoption.
Still requires proper plan documentation to qualify for tax-free treatment.
Example:
Providing $15,000 toward an employee’s qualifying adoption expenses can be excluded from their taxable wages while remaining deductible for your business.
4. Paid Family & Medical Leave Credit
What’s New:
OBBBA extends the Section 45S Paid Family and Medical Leave Credit through 2028 (previously set to expire after 2025).
Credit percentages in 2025 range from 12.5% to 25% of wages paid during qualifying leave, depending on the percentage of regular wages replaced.
Credit Basics:
Base rate: 12.5% of qualifying wages if you pay 50% of the employee’s normal wages during leave.
Increased rate: Add 0.25% for each additional percentage point above 50%, up to 25% if you provide full wage replacement.
Qualifying Leave Purposes: Birth/adoption/foster care, serious health condition (employee or family member), and certain military-related leave, all as defined under the Family and Medical Leave Act (FMLA).
Employee Eligibility: Must have worked at least one year and earned less than $87,000 in 2025 (indexed annually).
Employer Requirements:
Must provide at least two weeks of annual paid family and medical leave.
Leave must be in addition to any paid leave already required by state or local law.
Must have a written policy meeting IRS requirements.
Example:
If you pay an employee $1,000/week during qualifying leave and replace 80% of their wages, the credit is:
Base: 12.5%
Plus: (80% − 50%) × 0.25 = 7.5%
Total Credit Rate: 20%
Credit Amount: $1,000 × 8 weeks × 20% = $1,600 credit to the employer.
What This Means for Employers:
This credit rewards you for offering paid family and medical leave, something that can significantly improve employee retention and morale. If you already offer a generous paid leave policy, you may qualify with minimal changes. If you don’t, this is a cost-sharing opportunity to make your benefit package more competitive without shouldering the full financial burden.
5. Increased Form 1099 Reporting Threshold
What’s New:
Starting in 2025, the federal threshold for issuing Form 1099-NEC or 1099-MISC to independent contractors increases from $600 to $2,000.
This change applies to federal tax reporting only.
Why It Matters:
Reduces paperwork for small, one-off vendor payments at the federal level.
Still requires tracking payments, the rule just changes when a federal 1099 must be issued.
State laws may differ: Many states have their own 1099 reporting thresholds, and some have not adopted the federal increase. Certain states still require a 1099 at $600 or lower. In those cases, the state requirement supersedes the federal threshold for state filing purposes.
Federal Threshold Timeline:
2025: $600 (current federal requirement)
2026: Increases to $2,000
2027 and beyond: $2,000 threshold will be adjusted annually for inflation
Note: This applies to 1099-MISC and 1099-NEC forms. Always confirm both federal and state thresholds, state rules can be stricter.
State-Level Threshold Overview
Here's how states group by reporting requirements as of 2025, based on available data. These groups reflect known patterns; always verify current requirements with your state’s Department of Revenue:
Federal Threshold (2025) | States That Follow | States with Stricter Thresholds | Notes |
$600 | Most states adopt federal threshold | District of Columbia, Maryland, Massachusetts, Montana, North Carolina, Vermont — still require $600 Forms 1099 report | State may still require reporting at $600 even though federal moves higher |
Same as above | — | Missouri - requires 1099-K at $1,200, may impact 1099-NEC reporting depending on payment type. | Often applies only to payment processor reporting (1099-K), but worth noting |
Not required at state level | Florida, Illinois, Nevada, New Hampshire, New York, Texas, Washington | None reported yet | No state-specific 1099 reporting requirements found. |
Key Reminder
This table is a guide, not a substitute for state-level verification. Many states maintain their own thresholds or reporting rules for 1099-NEC/MISC and/or 1099-K. Always confirm:
The applicable threshold (usually $600 or higher)
Whether your state automatically adopts federal thresholds or maintains its own
If your business operates in multiple states, check each state’s rules
Example:
Federal: A $1,200 one-time payment to a freelance designer in 2025 would not require a federal 1099 under the new $2,000 threshold.
State Exception: If you are in a state with a $600 threshold, that same $1,200 payment would still require a 1099 filing with the state.
Tip:
Before changing your vendor payment reporting process, confirm both federal and state thresholds to avoid missing required filings.
Compliance Tips for Employers
Update Written Plan Documents:
Many benefits (FSAs, adoption assistance) require a formal written plan to maintain tax-favored status.
Coordinate with Payroll:
Ensure payroll providers and software are updated for new limits and reporting codes.
Communicate Changes to Employees:
Highlight how these benefits help them save money and why they’re valuable.
Track Effective Dates:
Not all provisions are permanent, for example, the student loan repayment exclusion is set to expire after 2028 unless extended again.
Final Thoughts
OBBBA’s employer benefit enhancements aren’t just nice-to-have perks, they’re strategic tools that can improve recruiting, retention, and employee satisfaction while offering tax advantages to your business.
Next Step: Review your current benefit offerings and identify where these changes could make the biggest impact for your team and your bottom line.
Missed Part 1?
We kicked off our OBBBA coverage with The One Big Beautiful Bill Act (OBBBA): Key Tax Changes for Individuals and Businesses, covering everything from new deductions for tips, overtime, seniors, and auto loan interest to major business tax provisions.
📖 Click here to read Part 1 and get the full picture before diving into the employer benefit enhancements and 1099 reporting changes in today’s post.
Need help navigating the new rules?
KB2 Bookkeeping & Tax can help you update your benefit plans, maintain compliance, and integrate these enhancements into your payroll and tax strategy. Call us at (512) 843-2320 or visit www.kb2bookkeeping.com to schedule your consultation.
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