The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces changes concerning a variety of employer compliance requirements. Critical updates payroll professionals must understand and implement, changes for immigration policy and labor regulations in the United States, health care related measures and more, this legislation has significant implications for employees, immigrants, I-9 compliance, corporate HR departments, and the broader labor market.
The final version of the bill that was enacted includes over 1,100 pages of legislative text, amendments and explanations for compliance-minded employers to peruse. This blog provides an overview of different aspects of employer compliance affected by the OBBBA:
- Changes to employer payroll requirements, including employee withholding, qualified overtime deduction, qualified tips deduction, and W-2 and 1099 reporting updates
- New for Form I-9 compliance updates
- Employer impact of certain health care related measures
Changes to Employer Payroll Requirements
Employee Withholding Implications
New withholding guidelines accompany updates to standard deductions:
- 2025 Standard Deduction:
- Married Filing Jointly/Surviving Spouse: $31,500
- Head of Household: $23,625
- Single/Married Filing Separately: $15,750
- Personal Exemptions: Permanently repealed, directly influencing withholding calculations.
Qualified Overtime Deduction
Individuals earning qualified overtime compensation can now deduct the premium portion (“half” of “time-and-a-half”) of their overtime pay required by the Fair Labor Standards Act (FLSA).
- Annual Deduction Cap: $12,500 ($25,000 joint filers)
- Phase-Out: Begins at modified adjusted gross income (MAGI) exceeding $150,000 ($300,000 joint)
- Reporting Requirement: Employers must report qualified overtime separately on Forms W-2 or 1099.
- Transition Relief: IRS will provide specific guidance to ease implementation for tax year 2025.
Qualified Tips Deduction
Employees and eligible self-employed individuals can claim deductions for “qualified tips” received in occupations regularly receiving tips, as identified by the IRS.
- Annual Deduction Cap: $25,000, limited to net income for self-employed
- Phase-Out: MAGI exceeding $150,000 ($300,000 joint)
- Eligibility Restrictions: Employees and self-employed individuals in Specified Service Trades or Businesses (SSTBs) under Section 199A are ineligible.
- Reporting Requirement: Employers must separately report qualified tips and occupations on Forms W-2 or 1099.
- IRS List: IRS will publish qualifying occupations by October 2, 2025.
W-2 and 1099 Reporting Updates
- Payroll systems must now accurately track and separately report qualified overtime and tips.
- 1099 Reporting Threshold: Increased to $2,000 (up from $600), effective 2025, with inflation adjustments from 2026 onwards.
Practical Actions and Experian’s Insights for Compliance
Experian recommends payroll professionals immediately:
- Update payroll software and internal reporting processes to accommodate new overtime and tip reporting.
- Proactively communicate these changes clearly to employees to prevent confusion and ensure accurate withholding.
- Continually monitor IRS updates and guidance, particularly for 2025 transition relief, to ensure ongoing compliance.
Key Provisions Relevant to I-9 Compliance
Expansion of Enforcement and Detention
- The act allocates an additional $170 billion toward immigration and border enforcement over four years, including $75 billion for detention and deportation operations. This increased funding is already transforming how I-9 compliance is monitored and enforced nationwide.
- The budget also allocates $3.5 billion for reimbursements to state and local governments for expenses related to immigration enforcement and detention.
- ICE’s staffing will grow from about 6,000 to over 16,000 agents by 2029, significantly boosting their capacity to carry out unannounced raids, audits, and site visits for I-9 compliance. The number of I-9 audits and worksite inspections is expected to increase substantially, especially in industries with large immigrant workforces such as hospitality, agriculture, retail, manufacturing, and healthcare.
- Mass expansion of detention centers could disrupt communities, induce fear among immigrant workers, and worsen labor shortages, especially in sectors dependent on immigrant labor.
Increased Fees and Administrative Burdens
- Significant fee increases for nonimmigrant visas ($250 extra), work authorization ($550 for initial work permits for asylum applicants, TPS holders, and parolees), and asylum applications ($100 annually).
- Although enforcement spending increased, resources for resolving immigration cases stay limited, causing ongoing backlogs and uncertainty for immigrant workers.
Corporate and HR Implications
- There will be a surge in random audits, stricter scrutiny, and higher penalties. ICE plans to utilize sophisticated data analysis and artificial intelligence to spot irregularities or omissions in I-9 documents, thereby expanding the scope for potential violations, including minor clerical errors.
- Expect increased civil and possibly criminal penalties for paperwork and hiring violations.
- Have stricter oversight into remote hires.
- There is a need for increased immigration-related budgets to cover new fees.
Labor Market Effects
- Stricter enforcement and increased deportation risks are causing immediate labor shortages in industries that heavily depend on immigrant workers, especially construction, hospitality, retail, and manufacturing.
- Tight labor supply may lead to higher wages, which can increase business costs and potentially delay project timelines.
- While some sectors may benefit from consumer-driven tax cuts, others (including those relying on immigrant workers) face instability due to workforce disruptions and increased compliance costs.
- Places like schools, churches, and hospitals are no longer designated as “safe zones” or “sensitive locations” where Immigration and Customs Enforcement (ICE) agents are prohibited from conducting arrests or other enforcement actions.
I-9 Action Steps for Employers
- Conduct I-9 Audits
- Review all active and terminated employee I-9 forms for completeness and accuracy.
- Correct technical errors promptly before they become substantive violations.
- Strengthen Internal Policies and Training
- Train HR and hiring managers on new documentation requirements, warning signs of fraudulent documents, how to avoid discrimination, how to use E-Verify, and accessing I-9 resources.
- Prepare teams for unannounced site visits by ICE and related agencies.
- Update Budget Forecasts
- Adjust budgets to account for higher visa and application fees, additional legal support, and potential increased overtime or sign-on bonuses due to labor shortages.
- Stay Informed and Engage Counsel
- Follow agency guidance and regularly consult with immigration counsel to ensure compliance policies stay current.
- Subscribe to updates from regulatory bodies and legal firms that specialize in employment and immigration law.
- Prepare for ICE Audits and Enforcement Actions
- Establish clear protocols for responding to ICE audits, including the chain of command and employee communication strategies. Develop a comprehensive plan for responding to ICE agents before, during, and after raids.
- Consider regular third-party outside audits to identify and fix vulnerabilities before government inspection.
The One Big Beautiful Bill Act marks a significant shift in the regulatory landscape for employers, immigrants, and HR professionals. Enhanced enforcement, increased penalties, rising administrative costs, and labor market shifts all demand a far more vigilant, proactive, and adaptive approach to I-9 compliance and workforce planning.
Employers who act quickly, conduct audits, invest in training, and strengthen communication and compliance infrastructure will be best positioned to reduce risk, retain key employees, and maintain operational continuity in a more unpredictable employment environment.
Health Care Measures
Certain health care related measures in the OBBA will have less direct—but still significant– impact on employers. Big changes to Medicaid eligibility requirements are likely to spur a need for change in processes at the employer level. Though these Medicaid provisions are not addressed at employers, they may have an affect on employee health benefits and cause a marked increase in employer involvement in verifying employment or documenting work hours.
The Medicaid work eligibility requirements will take effect January 1, 2027. Those newly adopted requirements state that able-bodied adults between the ages of 19-64 need to work at least 80 hours a month. There are exemptions for specific individuals, including pregnant women, caregivers of children under 13, tribal members or those with serious medical conditions to name a few, and states may also issue waivers for individuals facing short-term hardships. Prior to passage of the OBBA, only the state of Georgia had work requirements in place
Verification of eligibility for Medicaid will expand to require states to conduct an investigation to see if an individual meets requirements within the three months prior to applying. States will also be required to verify compliance with work requirements at least every six months moving forward. Prior to passage of the OBBA, the redetermination frequency was once every twelve months.
Medicaid eligibility for noncitizen aliens will also be scaled back, with those here on humanitarian terms, like refugees and asylees, now ineligible. That leaves Lawful Permanent Residents and some Cuban and Haitian parolees as well as those citizens of the Freely Associated States as the only eligible noncitizens. The provision is effective as of October 1, 2026.
Medicaid is not the only program to face work requirement changes under the OBBA. The act also addresses former exemptions to the “able-bodied adults without dependents”, (ABAWD) work requirements of the Supplemental Nutrition Assistance Program, (SNAP).
The OBBA removed exemptions that were in place for those who are homeless or veterans, and raised the age exemption from 55 to 64—a group comprising approximately 13% of the US population. In addition, the new act removed exemptions for those with dependents over 13 years of age. The new legislation also reduces state flexibility to waive any ABAWD work requirements in areas with high unemployment or limited job opportunities, meaning it will likely have a big effect on some rural areas.
Employee friendly states will likely move to close this newly created gap in some manner, but how remains to be seen. New Jersey Governor Phil Murphy signed an Executive Order on July 23, directing state agencies to review impacts of the Act. Agencies are to provide to submit projected impacts along with recommended legislative measures by October 1, 2025.
Employer Response to the OBBBA
The “One Big Beautiful Bill Act” is a massive bill with what are likely to be huge effects on employers overall. Enhanced work requirements will add administrative burdens for employers, and more employee friendly states could add to those responsibilities by adding further employer responsibilities in response. Employers need to ensure they are ready to accommodate all new measures in the OBBA and be ready to address any state countermeasures that could arise.