OBBBA Explained: PFML Tax Credit Expansion + No Tax on Tips & Overtime

Two important legislative updates have been introduced that could directly impact many of your clients, creating both compliance challenges and opportunities for proactive financial and HR planning. They are the PFML Tax Credit Expansion and the new ruling on No Tax On Tips & Overtime. Here’s what you need to know:

Expanded & Permanent PFML Tax Credit

Congress recently passed the One Big Beautiful Bill Act (OBBBA), which makes permanent and expands the federal Paid Family and Medical Leave (PFML) tax credit. This credit now allows employers to claim a general business credit of 12.5% of wages paid to employees on family and medical leave, increasing up to 25% depending on the wage replacement percentage.

Key enhancements:

Includes insurance premiums – employers can now claim part of the PFML insurance costs for employees on leave.
Expanded eligibility – applies even in states and cities with mandated PFML laws (California, New York, Washington, D.C., etc.), so long as employer policies exceed local minimums.
Applies nationwide – including new programs launching in Maine and Minnesota in 2026 and opt-in programs in states like New Hampshire and Vermont.

Why this matters for employers:

Predictable, stable tax savings with the credit’s permanence.
Competitive advantage in recruitment and retention with stronger leave policies.
Simplified compliance for multi-state employers by aligning PFML and FMLA policies.
Greater support for employees balancing work, health, and family responsibilities.

Employers must still meet key requirements, including offering a written PFML policy with at least two weeks at 50% pay, accurately tracking wages and premiums, and ensuring coordination with FMLA. Missteps can lead to costly penalties or audits.

New Federal “No Tax on Tips & Overtime” Law

The OBBBA also introduces a major tax change for employees: up to $25,000 in tips and $12,500 in overtime wages per year may now be deducted from federal income tax (2025–2028).

Highlights:

Covers W-2 and 1099 tips in traditionally tipped occupations.
Deduction phases out at $150k income for singles / $300k for joint filers.
Requires new IRS reporting—draft W-2 forms will have designated boxes for tips and overtime.
Employers in tipped and overtime-heavy industries face new payroll and compliance obligations, including clearly communicating with employees to prevent misunderstandings.

Preliminary Treasury List of Qualifying Occupations

On September 3, 2025, the Treasury Department released a preliminary list of 68 occupations that qualify as those which “customarily and regularly received tips” on or before December 31, 2024.

Examples span eight industries, including some unexpected roles like dishwashers, plumbers, digital content creators, massage therapists, and chefs, in addition to traditional tipped roles like bartenders, waitstaff, entertainers, and personal appearance professionals.

Key highlights include:

The list covers many occupations beyond what the Department of Labor had previously recognized as typically tipped.
A final, proposed list will be published in the Federal Register no later than October 2, 2025, when public comments will be accepted.

This expansion underscores the importance for employers to carefully track and classify employee income, as the range of qualifying occupations may surprise some industries.

Need Support? Officium Can Help

At Officium, we’re helping advisors and employers navigate these new opportunities and obligations. Our services include:

Drafting and reviewing compliant PFML policies
Coordinating wage and insurance premium tracking with payroll partners
Developing employee communication materials to ensure clarity
Providing compliance consulting and training tailored to both PFML and the new tip/overtime law

We also partner with accounting and financial advisors to help businesses maximize tax credits while staying compliant with evolving federal and state leave requirements.

If you’d like to schedule a training for your clients or explore how PFML compliance and policy development can be a value-add for your firm, we’d love to collaborate. Contact Edgar Ndjatou at edgar@officiumdc.com or schedule a time to connect here.