The federal government enacted the One Big Beautiful Bill Act (the “Act”) on July 4, 2025. The Act extends and makes permanent certain tax provisions introduced in the Tax Cuts and Jobs Act (the “TCJA”) that were scheduled to expire and introduces several new provisions. This alert summarizes the key business, international, and employment tax provisions included in the Act.

Business Tax Provisions

• Qualified Small Business Stock (“QSBS”) (Section 1202[1]):
  • Prior to the Act, non-corporate taxpayers that held QSBS for more than five years could exclude up to 100% of the gain from the sale of the QSBS from gross income (subject to per-taxpayer and per-issuer limitations).
  • Gain exclusion is expanded for QSBS acquired after July 4, 2025:
    • 50% of the eligible gain from the sale of QSBS held for three years can be excluded,
    • 75% of the eligible gain for QSBS held for four years can be excluded, and
    • 100% of the eligible gain for QSBS held for five years or more can be excluded.
  • The per-issuer limit on gain eligible for exclusion is increased from $10 million to $15 million (to be adjusted for inflation) for stock issued after July 4, 2025.
  • The gross asset limit that applies to determine whether a corporation is a “qualified small business” is increased from $50 million to $75 million (to be adjusted for inflation) for stock issued after July 4, 2025.
• Bonus Depreciation (Section 168(k)):
  • Prior to the Act, the bonus depreciation provisions included in the TCJA were scheduled to sunset at the end of 2026 (or 2027 for certain eligible property).
  • The Act permanently reinstates 100% bonus depreciation for eligible property acquired after January 19, 2025. As a result, taxpayers can immediately expense 100% of the cost of such eligible property.
• Depreciable Business Assets (Section 179):
  • The amount a taxpayer may deduct for qualifying depreciable tangible personal property is increased from $1.25 million to $2.5 million for such property placed in service in 2025 and is to be adjusted for inflation after 2025.
  • The threshold at which the allowance begins to phase out is substantially increased from $3.13 million to $4 million and is to be adjusted for inflation after 2025.
• Business Interest Deduction (Section 163(j)):
  • The Act permanently reinstates the earnings before interest, taxes, depreciation, and amortization standard for calculating the eligible business interest deduction (rather than the earnings before interest and taxes standard) applicable to tax years beginning after December 31, 2024, and before January 1, 2030.
• Qualified Business Income Deduction (Section 199A):
  • The Act permanently extends the 20% deduction for qualified business income that was introduced by the TCJA and set to expire at the end of 2025.
  • The income thresholds in which the deduction is phased out have been increased.
• Excess Business Losses (Section 461(l)):
  • The limitation on the deductibility of excess business losses of non-corporate taxpayers is made permanent. Any disallowed loss will continue to become a net operating loss in future years.
• Domestic Research or Experimental Expenditures Deduction (New Section 174A):
  • Permits taxpayers to immediately deduct 100% of domestic research and development (“R&D”) expenditures in the year they are incurred, effective for tax years beginning after December 31, 2024.
  • Certain small businesses can elect to retroactively deduct research and development expenditures incurred in 2022 through 2024, and any taxpayer can also elect to immediately deduct any amortization remaining with respect to such expenditures in the first tax year beginning after 2024 or ratably deduct over two tax years, with the first tax year beginning after 2024.
• Opportunity Zones (Sections 1400Z-1 and 1400Z-2):
  • The TCJA introduced tax benefits for investments in Qualified Opportunity Zones (“QOZs”) made through Qualified Opportunity Funds (“QOFs”) that were scheduled to expire at the end of 2026.
  • The Act extends the QOZ program indefinitely and makes certain changes:
    • State governors will propose new QOZs every 10 years.
    • Gains deferred through an investment in a QOF made after 2026 will be deferred five years (unless sold earlier).
    • Immediately before the end of the deferral period, investors will receive a basis increase allowing them to permanently exclude 10% of the deferred gain.
    • No tax will be imposed on gain realized from investments in QOFs that are held for at least 10 years and no more than 30 years. After 30 years, additional appreciation in a QOF will be subject to tax.
  • Investments in a QOF made prior to 2027 are not subject to the new QOZ rules.  Deferred gain invested in a QOF prior to 2027 and not previously recognized will still be recognized on December 31, 2026.

International Tax Provisions

• Global Intangible Low-Taxed Income (“GILTI”) and Foreign-Derived Intangibles Income (“FDII”):
  • GILTI is renamed “Net CFC Tested Income” (“NCTI”).
  • FDII is renamed “Foreign-Derived Deduction Eligible Income” (“FDDEI”).
  • The Act eliminates the exclusion for a 10% deemed return on tangible assets for purposes of calculating NCTI and FDDEI for tax years beginning after December 31, 2025.
  • For domestic C corporations, the effective tax rate for both NCTI and FDDEI (taking into account the disallowance of a portion of the foreign tax credit) is increased to approximately 14% beginning in 2026.
  • For domestic C corporations, the amount of foreign taxes that may be credited against NCTI is increased from 80% to 90% beginning in 2026.
• Base Erosion and Anti-Abuse Tax (“BEAT”):
  • The BEAT rate is permanently increased from 10% to 10.5% after 2025 (it was scheduled to increase to 12.5% under the TCJA).
• Controlled Foreign Corporation (“CFC”) Provisions:
  • Prior to the Act, a U.S. shareholder was required to include in gross income their pro rata share of subpart F income of a CFC for a tax year, but only if the U.S. shareholder owned stock of the CFC on the last day of such tax year. A U.S. shareholder who owns stock in a CFC during a tax year is now required to include their pro rata share of subpart F income for such tax year regardless of whether the U.S. shareholder owns stock in the CFC at the end of the tax year.
  • The Section 954(c)(6) look-through rule is made permanent. Under Section 954(c)(6), dividends, interest rents, and royalties are not treated as subpart F income if received or accrued from a CFC which is a related person to the extent attributable to, or properly allocable to, income of the related person which is neither subpart F income nor income treated as effectively connected with the conduct of a trade or business in the United States.
  • The Act restores Section 958(b)(4), which was repealed by the TCJA, beginning in 2026. Section 958(b)(4) generally prohibits “downward” attribution of stock ownership from a foreign person to a U.S. person for purposes of determining whether the U.S. person is a U.S. shareholder and whether a foreign corporation is CFC status.
  • The Act introduces Section 951B, which extends the subpart F and NCTI anti-deferral regimes to “foreign controlled U.S. shareholders” (“FCUSs”) of “foreign controlled foreign corporations” (“FCFCs”). As a result, FCUSs of FCFCs can have subpart F and NCTI inclusions from a FCFC based on downward attribution from a common foreign parent notwithstanding the restoration of Section 958(b)(4).
• Foreign Tax Credit (“FTC”) Modifications:
  • The deemed paid credit under Section 960 is increased from 80% to 90%.
  • FTCs are disallowed on 10% of foreign taxes related to distributions of previously taxed earnings and profits derived from Section 951A, aligning with the increased 90% deemed paid credit.
  • For U.S.-produced inventory sold abroad via foreign branches, only up to 50% of such income may be treated as foreign-source.
• Remittance Transfer Tax:
  • A new 1% excise tax is imposed on certain electronic transfers of money sent from within the United States to a foreign country, with exceptions for noncash transfers and those funded by U.S.-issued debit or credit cards.
• Non-enactment of the Retaliatory Tax Provisions (Proposed Section 899):
  • The House and Senate versions of the bill proposed new Section 899, which would have increased the withholding tax rate on certain U.S.-source income derived by foreign persons based in jurisdictions that impose “unfair foreign taxes” on U.S. persons.
  • As a result of agreements between the United States and G-7 members, proposed Section 899 was removed from the Act.

Employment Tax Provisions

• No Tax on Overtime (New Section 225):
  • The Act creates a new federal income tax deduction for qualified overtime compensation, which generally means overtime compensation paid to an individual under Section 7 of the Fair Labor Standards Act. The deduction is limited to $12,500 for individuals ($25,000 for joint returns) and begins to phase out for individuals whose modified adjusted gross income (“MAGI”) exceeds $150,000 ($300,000 for joint returns).
  • Employers are required to report qualified overtime compensation on annual Forms W-2 and Forms 1099-NEC, as applicable.
  • The provision is effective for tax years 2025 through 2028.
• No Tax on Tips (New Section 224):
  • The Act creates a new federal income tax deduction for qualified tips, which are defined to mean cash tips received by an individual in an occupation that customarily and regularly received tips on or before December 31, 2024. The deduction is limited to $25,000 and begins to phase out for individuals whose MAGI exceeds $150,000 ($300,000 for joint returns).
  • Employers are required to report qualified tips on annual Forms W-2, Forms 1099-NEC and Forms 1099-K, as applicable.
  • Within 90 days of the Act’s enactment, the Secretary of the Treasury is instructed to publish a list of occupations that customarily and regularly received tips on or before December 31, 2024. The Secretary of the Treasury will also publish modified withholding procedures for cash tips, effective beginning with the 2026 tax year.
  • The provision is effective for tax years 2025 through 2028.
• Employee Retention Credit (Section 3134):
  • The Act disallows the ability of employers to claim the COVID employee retention credit (“ERC”) after the Act’s enactment, unless the claim was filed with the IRS on or before January 31, 2024. This effectively means that employers are prohibited from making ERC claims for Q3 and Q4 2021 (unless the claim was made on or before the January 31, 2024 cutoff date).
  • The Act also includes enhanced enforcement and penalty provisions targeting ERC promoters.
• Paid Family and Medical Leave Credit (Section 45S):
  • The Act makes permanent the employer tax credit for paid family and medical leave established by the TCJA, which was scheduled to sunset at the end of 2025.
• Employer-Provided Child Care Credit (Section 45F):
  • The Act permanently increases the amount of the employer-provided child care credit from $150,000 to $500,000 (which will be adjusted annually for inflation). The percentage of qualified child care expenses for which employers can claim the credit is also increased from 25% to 40%, meaning employers must spend at least $1.25 million in qualified child care expenditures annually to receive the full amount of the credit.
• Dependent Care Assistance Program (Section 129):
  • Effective beginning with the 2026 tax year, the exclusion from gross income for employer-provided dependent care assistance is increased from $5,000 to $7,500 for individuals and from $2,500 to $3,750 for married individuals filing separately.
• Employee Moving Expenses (Section 217):
  • The Act permanently eliminates the individual exclusion and employer deduction for qualified moving expense reimbursements, which were suspended by the TCJA but were scheduled to resume in 2026.
  • Members of the U.S. Intelligence Community and active-duty members of the Armed Forces may still take advantage of the exclusion.
• Disallowed Deduction for Excessive Employee Remuneration from Controlled Group Members (Section 162(m)):
  • Under current law, public companies may only deduct up to $1 million annually per executive for compensation paid to certain top executives. The Act adds a new provision clarifying that the $1 million limitation applies to compensation paid by all members of the same controlled group of employers, meaning compensation paid by all members of the same controlled group is aggregated for purposes of determining whether the $1 million deduction limitation has been reached with respect to any executive.
• Tax on Excess Compensation within Tax-Exempt Organizations (Section 4960):
  • Under current law, certain tax-exempt organizations must pay an excise tax on compensation above $1 million paid to the top five most highly compensated employees and former employees. Effective beginning with the 2026 tax year, the excise tax will apply to all employees and former employees of the organization (not just the top five most highly compensated).

For more information on the new employment tax provisions, read our previous alert.

[1] All Section references are to the Internal Revenue Code of 1986, as amended.

Stephen M. Pennartz contributed to this article