Why It Matters

The OBBBA introduces significant, permanent tax changes for businesses and pass-through owners starting in 2026. From enhanced employer credits and expanded QBI deductions to revised international tax rules and new reporting requirements for overtime and tips, the law can meaningfully affect your after-tax cash flow. Early planning is essential to take advantage of these opportunities, maintain compliance, and avoid surprises.

Employer Credits

Beginning in 2026, the OBBBA permanently increases the maximum employer-provided childcare credit from $150,000 to $500,000 (adjusted annually for inflation). It also raises the credit rate from 25% to 40% of qualified childcare expenses. This means a business can claim the full credit ($500,000) if it spends at least $1.25 million on such expenses.

What’s more, eligible small businesses can claim a maximum credit of $600,000 (adjusted annually for inflation) at a rate of 50% of qualified childcare expenses. So the maximum credit ($600,000) is available for a small business that spends at least $1.2 million on the expenses. For 2026, eligible small businesses must have average annual gross receipts of $32 million or less over the preceding three-year period. The small business threshold is adjusted annually for inflation.

The law also introduces more flexibility in how businesses can offer care, allowing them to contract with third-party intermediaries or jointly operate childcare facilities with other employers.

In addition, the paid family and medical leave (PFML) credit — worth up to 25% of wages paid for qualified leave — was slated to expire after 2025. But the OBBBA makes it permanent. The law also allows employers to claim the credit for a portion of premiums paid for PFML insurance (instead of wages, but not both) and to reduce the minimum employee work requirement from 12 months to six months.

Key Impact: The enhancements to these credits can significantly reduce taxes for employers that subsidize childcare or offer paid leave. Employers may need to adjust their benefit plans to take advantage of these changes. They also must have appropriate procedures in place to track qualified childcare expenses and wages or premiums paid for PFML.

QBI Deduction

Starting in 2026, the OBBBA expands the phase-in income ranges for certain limits on the qualified business income (QBI) deduction. Specifically, it expands the ranges for specified service trades or businesses and businesses subject to the wage and investment limitation from:

• $100,000 to $150,000 for married couples who file jointly, and
• $50,000 to $75,000 for all other filers. 

So, for 2026, the phase-in ranges are:

• $403,500 to $553,500 for joint filers (up from $394,600 to $494,600 for 2025), and
• $201,750 to $276,750 for single individuals and heads of households (up from $197,300 to $247,300 for 2025).

As a result, some pass-through owners who didn't previously qualify for QBI deductions may now qualify, and some may be entitled to a larger deduction than under prior law. Some planning strategies used in prior years to reduce the impact of the limits might no longer be necessary.

The OBBBA also introduces a new inflation-adjusted minimum QBI deduction of $400 for taxpayers with at least $1,000 of QBI from one or more active businesses in which they materially participate. To qualify, taxpayers must demonstrate regular, continuous and substantial involvement in the business.

Key Impact: Expanded phase-in ranges may increase after-tax cash flow for pass-through owners. Be sure to maintain proper documentation for your QBI deduction and to revisit your tax planning strategies to ensure they remain appropriate under the liberalized rules.

International Taxes

The OBBBA fine-tuned the international tax law provisions, starting with a rebranding of two taxes on multinational businesses. Under current law, Global Intangible Low-Taxed Income (GILTI) is now referred to as Net Controlled Foreign Corporation Tested Income (NCTI), and Foreign-Derived Intangible Income (FDII) is called Foreign-Derived Deduction Eligible Income (FDDEI). The deductions for both NCTI and FDDEI are now permanent.

Starting in 2026, the OBBBA sets the NCTI deduction at 40% and the FDDEI deduction at 33.34%. The result will be an effective tax rate of about 14% for both taxes. The minimum Base Erosion and Anti-Abuse Tax (BEAT) tax rate also climbs to 10.5% for 2026. However, the OBBBA permanently allows several credits against the BEAT that were scheduled to expire after 2025.

Key Impact: With reduced foreign tax deductions, modifications to foreign tax credit calculations and higher tax rates on foreign income, tax planning is critical for multinational companies. There’s one silver lining, however — multinationals face greater tax planning certainty under the OBBBA. While the rules are set, it may take time for companies with global operations to fully understand the technical nuances and develop long-term strategies to optimize U.S. tax outcomes.

Overtime and Tips Deductions

The OBBBA allows eligible employees to claim new temporary deductions for qualified tips and overtime for 2025 through 2028. However, employer obligations apply only for 2026 through 2028.

Companies with eligible employees will need to file information returns and provide statements to workers that show certain cash tips received during the year and the worker’s occupation code. Employers must also file information returns and provide worker statements showing the total amount of qualified overtime compensation paid during the year. 

Key Impact: New reporting requirements may require payroll system updates and additional internal controls. Employers that prepare in advance will be better positioned to support employee deductions and avoid penalties.