Mid year 2025 brings important HR updates, some with immediate impact and some on the horizon.
It sounds like a Montana ranch. The One Big Beautiful Bill Act was signed into law on 7/4/25 and now coined as Triple B (or OBBA, but I think we can agree that Triple B has a catchier ring). Here is a summary of a few HR related provisions that impact employers in tax years 2025 through 2028. As with any piece of new legislation, stay tuned for further guidance and interpretation.
This provision allows for a federal tax deduction for “qualified” overtime (OT) earned in tax years 2025 though 2028. The term “qualified overtime compensation” means OT required under Section 7 of the Fair Labor Standards Act (FLSA), that is in excess of the regular rate paid to the worker. FLSA requires that OT be paid at a rate of 1.5 times the regular rate of pay. This is the part causing some confusion: the deduction is limited to the .5 earned over the regular rate of pay (the “half” portion of “time-and-a-half” compensation).
An example. For purposes of this example, we will assume the worker’s regular rate of pay is $30.00 per hour. The overtime rate is $30.00 x 1.5 = $45.00. Under the FLSA, OT is paid for hours worked in excess of 40 hours in the work week. If this individual works 45 hours in the work week, the deduction would be limited to $15.00 x 5 hours = $75.00.
The deduction phases out based on the worker’s modified adjusted gross income in excess of $150,000 (single) or $300,000 (married filing joint return). In addition, the deduction for any taxable year cannot exceed $12,500 (or $25,000 married filing joint return).
Planning for Year End? There will be no change to 2025 Form W-2. Overtime will still be included in gross compensation on the W-2. According to preliminary information, employers may reasonably calculate the amount paid in excess of the regular rate of pay as we wait for IRS guidance.
The cap on Dependent Care Flexible Spending Accounts (FSAs) will increase from $5,000 to $7,500 (married filing jointly). The cap hasn’t changed since the 1980s, making this a welcome increase for working parents. The increase may impact nondiscrimination testing, so stay tuned for more details. Effective date? Tax years after 2025.
Reimbursement under Internal Revenue Code Section 127 for qualified student loans has been extended for tax years after 12/31/25. In a nutshell, Section 127 allows employers to provide up to $5,250 for educational assistance programs for things like tuition, books, and supplies. Tax-free educational assistance benefits also include principal or interest payments on qualified education loans, which was on track to sunset after tax year 2025. The dollar limit will be indexed for inflation beginning in 2027. According to the Federal Reserve Bank of New York, outstanding student loan debt in the U.S. stood at $1.63 trillion in Q1 2025.
Workforce development may receive a boost with the expansion of Pell Grant eligibility to short-term job training programs. These “Workforce Pell” programs are aimed at workforce readiness, upskilling, and skilled trade credentials with relatively short-term parameters (8 to 15 weeks).
Triple B /OBBA also created a temporary deduction for tip income for tax years 2025 through 2028.
In essence, this allows eligible workers to deduct up to $25,000 of qualified tip income from their federal income taxes. The deduction is phased out for individuals with modified adjusted gross income in excess of $150,000 ($300,000 for married filing joint returns).
To be eligible, the individual must work in an occupation that “customarily and regularly received tips” before 2025. A preliminary list of qualifying occupations was released by the Treasury Department and the IRS (Internal Revenue Service) in early September, with a final list expected by October 2, 2025.
In August, the IRS unveiled a *draft* of what Form W-2 might look like for 2026.
The U.S. Department of Labor’s (DOL) proposed budget for 2026 indicates an intention to eliminate the Office of Federal Contract Compliance Programs (OFCCP). At this point, there are more questions than answers around pivotal components such as enforcement, contractor responsibilities, and the future of federal affirmative action. Employers subject to OFCCP regulations should stay compliant while awaiting further guidance.
An interesting term has hit the HR world… job hugging. According to an August article from Korn Ferry (an international management consulting firm), holding onto a job “for dear life” is on the rise, i.e. job hugging. A reversal from years of job hopping, many U.S. workers are now hesitant to leave their current employment. The U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Survey reports a total quits rate at 2.0% (June 2025), down from 2.7% in June of 2021. The “quits rate” is the rate at which workers are voluntarily leaving their jobs. This may track broader market trends around workers’ perceptions of job security and economic uncertainty.
Stay tuned for updates and consult with a trusted advisor to fully understand how these laws and trends impact your organization.
Unsure how to navigate the complexities of employment law changes? Check out our recent blog post for tips and guidelines.
About the Author
HR Consultant, Stacy Johnston, provides innovative solutions with a mission to support organizations in understanding and engaging their biggest competitive advantage… their employees. Johnston is a licensed attorney in Minnesota and holds the SHRM-CP (Certified Professional) credentials.
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