With nearly 900 pages and more than 100 tax-related provisions, H.R.1, the One Big Beautiful Bill Act, which was signed into law on July 4, 2025, has several important changes for small businesses to navigate. Payroll, employment tax and employee benefit changes are among the law’s key provisions, with some retroactively effective as of Jan. 1, 2025.

While the Department of the Treasury and the IRS are expected to provide further guidance on implementing certain provisions, there are steps small businesses can take now to prepare for potential impacts.

Tax credits for benefits offerings

For small businesses competing for talent, a comprehensive benefits strategy can help and often goes a long way in making employees feel valued. ADP’s latest benefits sentiment data shows that 78% of employees say they feel valued by their employer due to the medical benefits that are offered, while an even higher percentage (82%) feel valued by the non-medical benefits their employer provides. As you look for opportunities to extend employee benefits, consider the following changes:

• Enhanced childcare credit: For small businesses, the Act increases employers’ tax credits for qualified expenses for employer-provided childcare. Covered expenses generally include the employer’s direct payments to qualified childcare facilities or caregivers, the costs of starting and running on-site childcare and a more limited credit for childcare referral services. Additionally, the Act allows small businesses to pool their resources to provide childcare to their employees and for businesses to use a third-party intermediary to facilitate childcare services on their behalf.

• Increased paid family and medical leave credits: The employer tax credit for paid family and medical leave benefits was scheduled to expire at the end of this year. The Act makes the credit permanent. The Act also reduces the required length of employment for eligibility from one year to six months, increasing the number of employees covered. Beginning in 2026, employers will also be able to take a credit for amounts paid as premiums for qualifying insurance policies that pay employee wages for family and medical leave.

Related: 20 Tax Deductions Online Businesses Can Take to Save Thousands

Opportunities to offset R&D costs

As small businesses look for ways to increase agility and differentiate the products and services they offer customers, there are opportunities to help offset the costs associated with research and development (R&D).

• Expanded domestic R&D deductions: Instead of amortizing research and development costs over multiple years, the Act allows businesses to immediately deduct domestic R&D expenses starting in 2025. (R&D conducted outside the U.S. must still be amortized.)

Small businesses (with average annual gross receipts of $31 million or less) will generally be able to retroactively expense domestic R&D costs made after Dec 31, 2021. The retroactive deductions can also be taken as a catch-up deduction in 2025, spread over the 2025 and 2026 tax years, or the business can file amended tax returns for the applicable years. To qualify, the amendments must be filed before July 4, 2026. The Act also includes rules to coordinate the immediate deductibility of R&D costs with the federal research and development tax credit.

Prepare for income tax changes

In addition to changes to business tax, there are some key personal income tax provisions in the Act that can impact payroll and withholdings. Small businesses should prepare for the following changes, which may affect record-keeping and require communication with employees:

• New deductions for qualified overtime and tips: Overtime pay required by the federal Fair Labor Standards Act will become deductible up to $12,500 (or $25,000 if filing a joint tax return). Only the premium portion of the overtime is deductible – for example, if an employee’s regular rate of pay is $10/hour and they receive $15/hour for overtime, only the $5 overtime premium is eligible for the deduction. Additionally, for income from tips, the new deduction is up to $25,000 and includes tips received in cash, charged or received under a tip-sharing arrangement. In all cases, tips must be voluntary (meaning mandatory service charges are not eligible for deduction). The tips must be received in an occupation that customarily and regularly received tips as of Dec. 31, 2024 — a proposed list of these occupations has been released by the IRS. Certain professions — generally those recognized as a specified service trade or business, or SSTB, are not eligible for the tip deduction. Both deductions apply only to federal income taxes and begin to phase out when a taxpayer’s modified adjusted gross income exceeds $150,000 (or $300,000 if filing jointly). Additionally, both deductions are retroactive and can be taken for the full 2025 tax year.

To help with any recordkeeping challenges, the Act provides a transition rule allowing for reasonable accounting measures to calculate eligible deductions for 2025. Due to the retroactive adoption of these deductions for 2025, the Department of the Treasury has released guidance providing that employers and payors are not required to provide employees and payees with estimates of qualified overtime and cash tips for 2025, but are encouraged to do so.

Separate guidance was issued in late November to assist individual taxpayers in estimating their deductions for 2025 by describing how they could use employment-related documents, such as pay statements and IRS forms, to derive their amounts of deductible overtime and tips if that information is not provided by their employer or payor Treasury and IRS are also expected to release finalized guidance on tipped occupations and qualified tips, as well as guidance to employers and payors for supporting these deductions for 2026-28.

Related: Switching to a C Corp Could Save Your Business Thousands — Here’s How

Stay focused on business growth

Staying on top of complex regulatory changes requires both proactive monitoring and reliable support. Accountants and trusted service providers can help interpret new regulations, provide guidance on appropriate actions and help identify relevant tax credit opportunities that might benefit your business.

As further guidance is issued for H.R.1, and as with all tax matters, work with your trusted tax advisors to stay on top of new requirements specific to your business. Having technology in place that monitors regulatory updates and integrates changes directly into payroll and HR workflows can help reduce risk and enable continuity as well.

With small business owners often pulled in many directions, building a strong support system — from the solutions you leverage to the advisors you engage — can help you stay focused on strategy and business growth.