How the “Big Beautiful Bill” (H.R. 1) Changes Payroll, Taxes, and Compliance

What Is H.R. 1?
H.R. 1, originally called the “One Big Beautiful Bill Act (OBBBA),” was signed into law on July 4, 2025 by President Donald Trump. Although the Senate removed its short title, it's nickname the “Big Beautiful Bill” stuck in headlines and public discussion.

This bill makes the 2017 Tax Cuts and Jobs Act provisions permanent, restores 100% bonus depreciation for qualifying purchases, and introduces new payroll related measures like ‘no tax on tips or overtime’ for eligible workers.

The bill also expands on child tax credits, tightens I-9 and e-verify rules, plus enforces more audits and higher penalties.

As a business owner, H.R. 1 can give you tax savings, but it also gives you more responsibility when it comes to payroll compliance.

Megapay is here to help you leverage the advantages while navigating the added complexity. So let's break down the important features of the BBB together. 

Restaurant Owners: No Tax on Tips

If you own or run a restaurant, the most immediate change you’ll feel from H.R. 1 is the new “no-tax-on-tips” deduction for workers (up to $25,000 or $50,000 if married filing jointly).

This doesn’t change your responsibility to report and withhold FICA on tips. But, you’ll want to track cash and credit card tips more closely & separately. plus prep your team for their W-2s that show qualified amounts.

Your employees will now take home better pay, which can help your retention. But you've got to make sure you keep tip reporting clean all year (Megapay can help with this 😉). 

Salons & Spas: Tips + Overtime Pay Update

The same tip rules apply to stylists, but there's a new overtime deduction. Your employees can now deduct the premium portion of overtime pay, up to $12,500/year (or $25k if filing jointly). This will run 2025-2028, unless voted to be extended.

This change can become both a communications project with your staff and a data project for your bookkeeper. So be aware, it's best to start now to clearly separate base pay from overtime & tips in payroll.

Megapay can help you tag and track the portion of overtime separately from base pay, so your year end filing won’t be a mess.

More clarity to come on this as the Treasury and the IRS publish implementation details. Hang tight!

Construction & Field Services: Expensing. 

If you own or run a construction or field service company like HVAC, electrical, or plumbing, it’s now easier for you to plan for big purchases. You can write off the full cost of qualifying equipment (purchased after January 19, 2025), like trucks, tools, lifts, or job site tech. This can be done right away instead of spreading it out over several years.

This means more money can stay in your pocket now, not later. Many business owners are also tracking payroll costs more closely by tagging hours to specific jobs.

This makes it easy for your accountant or bookkeeper to line up purchases with income and get the most tax savings.

Retail & E-Commerce: Tax Saving Purchases

As an e-commerce or retail business, you should focus on maximizing your deductions. With Tax Cuts and Job Acts (TCJA) extensions and first-year expensing rules restored, you can deduct upgrades for your POS systems, warehouse scanners, or laptops for your back office.

We recommend running a capital spend report every quarter, then mapping your purchases to the new expense rules so you’re not leaving money on the table. 

Healthcare and 24/7 Operations: Overtime

If you run a healthcare facility or any business that operates around the clock (like a security company) it’s best to take a cautious approach to the new overtime deduction until the IRS releases the final rules.

Even if employees can deduct some of their overtime pay, you’ll still have to withhold and pay payroll taxes like Federal Insurance Contributions Act (FICA), plus keep in mind, your state or local income tax rules may be different.

The safest move is to separate the portion of overtime in your records, make sure your team is getting this approved, and keep that documentation on file.

Megapay’s timekeeping and approval tools automatically store these records so you can easily back up your payroll categories if you ever find yourself in an audit.

Remote Companies

For remote-first businesses (i.e. marketing agencies, SaaS companies, and consulting firms), the updated I-9 and E-Verify rules just got a little stricter.

For remote verification, you’ll need a consistent process for live video calls, high quality document images, and a secure way to store these documents.

Without a repeatable process, you are risking noncompliance!

Megapay can help you timestamp verification and store documents in your employee's profile for quick retrieval. Everything you need will stay organized & ready to go!

Manufacturing and Distribution

For manufacturers and distributors, the “Big Beautiful Bill” makes it easier to invest in equipment like assembly line machinery, forklifts, and warehouse automation thanks to the return of 100% bonus depreciation. You can deduct the full cost in the same tax year.

The no-tax-on-overtime rule may also shift staffing patterns, as employees may seek more hours. That could improve retention, but requires careful scheduling and compliance to manage overtime costs.

All Employers: Updated I-9 and E-Verify

Under the current administration, Form I-9 and E-Verify compliance has moved to the top of the enforcement list. As of April 2025, USCIS updated I-9 form language to replace “alien authorized to work” with new wording, and E-Verify now mirrors this change.

With ICE’s budget tripled under the Big Beautiful Bill, audits, site inspections, and fines are expected to increase across industries. This means a single paperwork error can now cost significantly more than before. That’s why consistent onboarding processes are critical.

All Industries: Employee Retention Credit (ERC)

If you claimed the Employee Retention Credit (ERC) for 2020 or 2021, be prepared because IRS audits on ERC claims are happening and ramping up. Many of these reviews are targeting eligibility documentation, including proof of revenue declines, evidence of government mandated shutdowns, and payroll records matching what was filed on Form 941-X.

An audit doesn’t automatically mean you’ll lose the credit, but you’ll need airtight records to defend it. If you are selected for an audit, it’s important to respond quickly with documentation.

Megapay's Takeaway

H.R. 1 or 'The Big Beautiful Bill' can your lower tax responsibility and improve your team’s take home pay, but it also means you need cleaner payroll data and tighter compliance.

Megapay helps you segment tips and overtime, keep I-9/E-Verify airtight, and export CPA-ready reports. Whether you’re in hospitality, retail, construction, healthcare, or tech, we’ll help you adapt!