On July 4, President Trump signed H.R. 1, the One Big Beautiful Bill Act (OBBBA), into law. The law includes several Republican priorities related to tax, healthcare, immigration, and energy policy. Notably, it also includes provisions that could impact higher education HR professionals’ work. The summary below details some significant HR provisions of the new law.
No Tax on Tips and Overtime
OBBBA introduces two key tax relief provisions aligned with President Trump’s campaign pledges — removing tax liability from tips and overtime earnings.
Tip Income Deduction
The “no tax on tips” provision allows a temporary above-the-line tax deduction of up to $25,000 for eligible tip income received by individuals working in occupations where tipping is customary. The treasury secretary is responsible for designating eligible occupations within 90 days of the bill’s enactment. Both employees and independent contractors, whether they itemize deductions or not, may qualify.
The deduction begins phasing out for individuals with a modified adjusted gross income (MAGI) above $150,000 (or $300,000 for joint filers), adjusted annually for inflation. The deduction is reduced by $100 for every $1,000 over the income threshold. Only tips that are voluntarily given, non-negotiated, and determined solely by the payer are considered. To claim the deduction, taxpayers must provide their Social Security number, and their spouse’s SSN if filing jointly. This provision applies to tax years from 2025 through 2028.
Overtime Income Deduction
The “no tax on overtime” provision offers a deduction of up to $12,500 for individuals (or $25,000 for joint returns) for qualified overtime pay. To qualify, the overtime must comply with Section 7 of the Fair Labor Standards Act (FLSA) and be separately reported on the worker’s W-2. Like the tip deduction, it is available to both itemizers and non-itemizers and begins phasing out at $150,000 MAGI (or $300,000 for joint returns), reduced by $100 per $1,000 over that limit. Social Security numbers are required for eligibility. This deduction is also available from 2025 through 2028.
Expanded Use of 529 Savings Plans
OBBBA expands the scope of 529 education savings plans by broadening the definition of “qualified education expenses.” Traditionally, 529 savings plans have only covered costs associated with obtaining college, graduate or professional degrees; education programs at accredited institutions; registered apprenticeship programs; portions of elementary and secondary school tuition; and certain student loan repayments. Under OBBBA, qualified education expenses now include tuition, fees, books, supplies, equipment, and other expenses incurred to enroll in or attend a recognized postsecondary credential program; fees for testing as required to obtain a recognized postsecondary credential; and fees for continuing education as required to maintain a recognized postsecondary credential. This provision applies to distributions made after the date of enactment (July 4, 2025).
Workforce Pell Grants
A new provision under OBBBA enables Pell Grants to be used for short-term workforce training programs. Eligible programs must offer between 150 and 600 hours of instruction over eight to 15 weeks and must align with high-skill, high-wage, or in-demand fields. Additionally, these programs must lead to recognized, portable, and stackable credentials that can transfer across employers. The program takes effect on July 1, 2026 and will apply to the award year 2026-2027.
Section 127 Student Loan Repayment Assistance
OBBBA makes permanent the temporary expansion under COVID-era relief that allowed employers to provide tax-free assistance for employee student loan repayments under Section 127 of the Internal Revenue Code. Previously capped at $5,250 annually for educational expenses like tuition and books, this now permanently includes student loan repayment. Starting in 2026, the annual limit will also be indexed for inflation.
Enhanced Child and Dependent Care Tax Credit
The new law provides more relief to taxpayers utilizing the child and dependent care tax credit. The enhanced credit begins at a 50% rate but is phased out based on income. For taxpayers with an adjusted gross income (AGI) over $15,000, the credit is reduced by 1 percentage point for every $2,000 above that amount, but not below 35%. If taxpayers’ AGI exceeds $75,000 (or $150,000 for joint filers), the credit is further reduced by 1 percentage point for every $2,000 over that threshold, with a minimum credit rate of 20%. The enhanced credit applies to taxable years after December 31, 2025.
Paid Family and Medical Leave Tax Credit
Under OBBBA, the existing paid family and medical leave tax credit available to eligible employers that provide paid leave at a rate of at least 50% of the wages normally paid to an employee are made permanent. The credits were set to expire at the end of 2025. Given the tax-exempt status of nonprofit institutions, this would mostly apply to for-profit institutions.
Employer-Provided Fringe Benefits
OBBBA terminates two employer-provided fringe benefits for tax years beginning after December 31, 2025. Specifically, the law terminates the exclusion for qualified bicycle community reimbursement but adds an additional year of inflation adjustment for other transportation benefits. It also terminates the exclusion for qualified moving expenses reimbursement and the deduction for moving expenses, but maintains an exception for members of the armed forces and members of the intelligence community.
Expanded HSA Flexibility
OBBBA includes several provisions to make Health Savings Accounts (HSAs) more flexible. Notably, the law enhances HSAs by allowing high deductible health plans (HDHPs) to cover telehealth services prior to meeting deductibles. It also classifies all Bronze and Catastrophic ACA plans as HDHPs and permits direct primary care arrangements to qualify for HSA use. All provisions are effective for health plans beginning on or after January 1, 2026.
Increase to Dependent Care Assistance Program Limit
OBBBA increases the limit for the dependent care assistance program, which allows employers to provide dependent care assistance funds to employees on a tax-free basis. The new limit is increased from $5,000 per year to $7,500 per year or $3,750 for married couples filing separately, and it will apply for tax years beginning after December 31, 2025.
Trump Accounts
Beginning January 1, 2026, OBBBA creates a new tax-preferred savings account for children under age 18 called the “Trump account.” These accounts will operate like individual retirement accounts, allowing earnings to grow on a tax-free basis. Parents, relatives and other entities may contribute up to $5,000 annually after-tax (indexed for inflation) up to age 18, with certain exceptions.
Children born between 2025 and 2028 will be automatically enrolled and receive a $1,000 one-time federal contribution to jumpstart their account. The accounts must be held by a financial institution and invested in a qualified index fund. Distributions from the accounts are prohibited until the child reaches age 18.
Notably, OBBBA allows employers to contribute to an employee’s child’s Trump account on a tax-free basis. The law requires the employer to have a separate written plan document to make such contributions, and the plan is subject to nondiscrimination rules under IRC Section 129. Employers may contribute up to $2,500 for each employee, and that amount is indexed beginning in 2027.
Further regulatory guidance on the Trump accounts program is expected from the Department of the Treasury.
CUPA-HR is further analyzing the bill and will keep members apprised of additional updates related to OBBBA. Thanks to our colleagues at Segal for helping us with this alert. Colleagues from Segal will also partner with us on our July 24 webinar, which features a more in-depth review of the HR implications of the OBBBA law.