Leveraging Employer Credits & Benefits Changes from the OBBB in Your Payroll Strategy
NOVEMBER 6, 2025
Earlier, in Blog 1, we introduced the broad payroll impacts of the One Big Beautiful Bill. Then in Blog 2, we walked through how to handle the new tip/overtime deductions in payroll. Now, let’s explore how employer-side credits and benefit changes in OBBB can affect your bottom line—and how to build them into your payroll/HR planning.
Key Employer-Side Changes Beneficial to Small Businesses
Change | What It Does | How You Can Use It |
Employer-provided childcare credit increase | Starting in 2026, the credit rises: typically 25% of qualified expenses → 40%, and up to 50% for eligible small businesses (with gross receipts ≤ ~$31M). | Plan now for increased childcare subsidies (if you offer them or contract them). Adjust budget projections so you can take advantage fully. |
Expanded dependent care FSA limit | The annual FSA cap increases from $5,000 to $7,500 (or $3,750 for married filing separately). | Update your benefits enrollment materials for employees beginning 2026, so eligible staff can maximize the new FSA limit. |
Paid leave (FMLA) credit made permanent | The tax credit for employers who pay wages to employees on FMLA leave is now permanent (rather than temporary). | If you offer paid leave during FMLA, ensure payroll captures those payments properly so you can claim the credit. |
Permanent extension of favorable business expensing rules | Certain business deductions (bonus depreciation, R&D expensing) are made permanent, which indirectly affects your tax burden if you're a pass-through business. | Coordinate with your tax advisor to align payroll, bonus or capital expenditure schedules to maximize deduction timing. |
How to Integrate These Into Your Payroll / HR Planning
- Model the tax impact
- Run projections for 2026+, showing how much extra credit or deduction, you may capture.
- Use these projections in budgeting, especially for benefits (childcare, paid leave) where offering slightly more may pay for itself via credits.
- Coordinate with benefits / HR processes
- Update benefits of enrollment systems so that employees and payroll know the new FSA limits, childcare subsidy rules, etc.
- Ensure your payroll coding supports marking which expenses/payments are eligible for credits.
- Meet eligibility thresholds
- For the increased childcare credit (50% instead of 40%), your business must qualify (gross receipts ceiling).
- Watch phaseouts or limitations in the credits/deductions (some are only partially available for certain business sizes or years).
- Stay alert on IRS / Treasury implementation
- Formal guidance will specify exact rules, allowed documentation, and allowable audit methods.
- Payroll.org and IRS fact sheets are good resources to monitor. (Payroll.org already flags that many questions remain.)
Putting It All Together: A Payroll Strategy Checklist
- Ensure your payroll system can track and report the “qualified deductions” (overtime, tips) and the employer-side credits.
- Communicate with employees about how these changes affect their withholding, benefits, and tax outcomes.
- Align your HR/benefits offerings (childcare subsidies, FSA increases, paid leave) to fully use the new credits.
- Monitor IRS / Treasury rules as they’re released—and adjust your systems or processes accordingly.
- Coordinate closely with your tax advisor so payroll and overall tax planning are aligned.
For guidance on how the One Big Beautiful Bill impacts your business, contact Payroll Vault at (303) 806-0276. Our team is ready to walk you through what these changes mean for your payroll and compliance.
