On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, ushering in sweeping changes to payroll, benefits, and tax reporting. While much of the public attention has focused on individual tax relief, employers must now navigate a complex new landscape—especially when it comes to Affordable Care Act (ACA) compliance.
This blog post explores how OBBBA affects ACA affordability calculations, reporting obligations, and strategic benefit design—and what employers should do to stay compliant and competitive.
1. Overtime & Tip Deductions: A New Affordability Challenge
OBBBA allows employees to deduct up to $12,500 in overtime pay and $25,000 in cash tips from their taxable income annually through 2028. While this boosts take-home pay, it also lowers Modified Adjusted Gross Income (MAGI)—the metric used to determine ACA subsidy eligibility.
https://www.jdsupra.com/legalnews/one-big-beautiful-bill-act-s-no-tax-on-4250933/
Why it matters:
Employees with reduced MAGI may now qualify for marketplace subsidies, even if their employer’s health plan meets ACA affordability thresholds using W-2 wages. This creates a disconnect between employer compliance and employee subsidy eligibility, potentially leading to unexpected plan opt-outs.
2. New W-2 Reporting Requirements
To support these deductions, employers must now:
- Report qualified overtime compensation separately.
- Itemize cash tips and include the employee’s occupation.
https://www.jdsupra.com/legalnews/one-big-beautiful-bill-act-s-no-tax-on-4250933/
Action required:
Payroll systems must be updated to track and report these fields accurately. Misreporting could jeopardize both employee deductions and employer ACA compliance.
3. Fringe Benefits Now Taxable
OBBBA permanently repeals the tax exclusions for:
- Moving expense reimbursements
- Bicycle commuting stipends
https://www.crowell.com/en/insights/client-alerts/one-big-beautiful-bill-act-impact-on-employee-benefits
https://www.adp.com/spark/articles/2025/07/hr-1-the-one-big-beautiful-bill-act-enacted-july-4-2025.aspx
These benefits now count as taxable wages, increasing Box 1 income. While this may help meet affordability thresholds in edge cases, employers should avoid using fringe benefits to manipulate ACA compliance.
4. Dependent Care & Childcare Enhancements
Starting in 2026:
- Dependent Care FSA cap increases from $5,000 to $7,500.
- Employer childcare credit expands from $150k to $500k, with a higher reimbursement rate.
ACA implications:
Higher FSA contributions reduce Box 1 wages, potentially making coverage appear less affordable under the W-2 safe harbor. Employers should monitor this closely and consider adjusting premium contributions or switching safe harbor methods.
5. Executive Compensation Aggregation
OBBBA introduces a new Section 162(m) aggregation rule, requiring controlled groups to treat executive pay across entities as a single pool for the $1M deduction limit.
ACA concern:
Employers must coordinate Form 1095-C reporting and coverage offers for executives paid by multiple entities to avoid misclassification or gaps in coverage.
6. Marketplace Subsidy Reductions
The bill rolls back ACA premium subsidies for many middle-income individuals (e.g., those earning ~$60k+), pushing more employees toward employer-sponsored plans.
Strategic opportunity:
Employers may see increased plan enrollment and should prepare for affordability recalculations and potential shifts in risk pools.
What Employers Should Do Now
- Reevaluate safe harbor strategies: Consider switching from W-2 to rate-of-pay or federal poverty line methods.
- Update payroll systems: Ensure new W-2 fields are tracked and reported correctly.
- Amend benefit plans: Reflect new FSA caps and childcare credits.
- Coordinate across entities: Especially for executive compensation and ACA reporting.
- Educate employees: Help them understand new W-2 entries, subsidy changes, and benefit options.
- Leverage ACA Reporting Expertise: With the new complexities introduced by OBBBA—like revised affordability calculations, expanded W-2 reporting fields, and executive compensation coordination—many employers are turning to trusted partners for support.
How Integrity Data Can Help
Integrity Data’s Outsourced ACA Reporting and Filing service, as part of our HRP solution for Business Central, offers a streamlined, secure, and compliant solution that reduces administrative burden and stress by ensuring accurate Form 1095-C generation and filing. By automating data collection and validation across payroll systems, Integrity Data helps employers stay ahead of regulatory changes while minimizing risk and saving time.
Final Thought
The Big Beautiful Bill is more than a tax overhaul—it’s a compliance wake-up call. Employers who act now can not only avoid penalties but also enhance employee satisfaction and benefit engagement. Let us know if you would like to learn more about how our Outsourced ACA Reporting and Filing services can bring you peace of mind by helping you stay compliant and avoid costly fines.
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Integrity Data HRP is your complete HR, Time Management, and Payroll platform from within Dynamics GP and D365 BC. Everything works together effortlessly so you can focus on what really matters, your people.
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Reach out today and our no-pressure solution experts will answer your questions to see if we are a good fit for your organization.
Integrity Data has been serving the Dynamics community since 1996. Our passion is to help HR and payroll professionals own their time so they can focus on helping their people. As always, your people are our priority.
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